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This research aims to measure service quality at Berhan International Bank SC. It also examined the influence of quality service on customer satisfaction. The SERVQUAL model was used to determine customers’ perception of service quality at BIB. The researcher used both descriptive and explanatory language because she was interested in describing the existing situation and explanatory language was used to understand the relationship of service quality and customer satisfaction. The researcher collected sample data from 10 branches of Berhan International Bank, selected based on the customers with the highest number of BIBs, and called this branch's section green. Based on the number of customers, the 224 questionnaires were distributed to all green branches, and after a short interview, a short interview with customers’ service quality dimensions showed a negative confirmation result, indicating that the service quality at BIB is below the customers’ expectations. Moreover, the study identified positive and

Strong relationship between the independent variables, the five service quality dimensions, indicating that customers of BIB are satisfied with its service. The negative confirmation for tangibles is the highest score that calls for the BIB management's immediate action since the

improvement in this dimension significantly changes service quality and customer satisfaction as well. The researcher recommended that the bank invest in the human resources part to enhance the skill and quality of the service-providing staff. By doing so, the bank could have sustained competitive advantages. Secondly, it also invests in the physical evidence of the service, the tangible dimension and must have its own building.

Keywords: Service Quality, service quality, Customer Satisfaction, perceived Service Quality.




1.1 Background of the Study

The history of banking in Ethiopia started with the Axumite dynasty back in the days; however, modern banking in Ethiopia started in 1905 with the establishment of the Abyssinian Bank based on a 50-year agreement with the Anglo-Egyptian National Bank.

In 1908, a new development bank and two other foreign banks were also established. In 1931, the Ethiopian government purchased the Abysinian Bank, which was the dominant bank, and renamed it “The Bank of Ethiopia,” the first nationally owned bank on African continent. In 1943, the Ethiopian government has established its own bank called State Bank of Ethiopia, which served both commercial bank and central bank activities. Later on, it was further dissolved into the National Bank and Commercial Bank of Ethiopia. (Pankhurst, 1968)

The shift to Marxist government in 1975 brought several changes to the banking system and saw the nationalisation of private banks and insurance companies. The major 3 commercial banks were merged under the Addis Ababa Bank, and the National Bank of Ethiopia was given oversight over all financial institutions. (www.NBA.com ,2013)

After 1992, the financial sector has been deregulated, giving authorization to private banks, insurance companies and micro finance institutions. Recently, Construction & Business Bank merged with Commercial Bank of Ethiopia and the number of Banks operating in the country reached 19 Also, different kinds of financial instructions operate in different region of Ethiopia; now a day’s computation between banks is greater than ever.

(www.NBA.com, 2013).

Service quality has a significant impact on a bank’s success; it is vital in the banking industry because it provides a high level of customer satisfaction, and hence it turn out to be a key to competitive advantage.

According to Sulieman (2013), the service quality of banking services provided to customers have been enhanced and it can be used as a foundation for realising service excellence to meet competition.

Service is an activity or set of intangible activities that usually occur in interactions among customers and employees and offered as solutions for customer problems (Sanjideh, 2006).

Parasuraman, Zeit Haml, and Berry (1985) stated that it may be inappropriate to use a product-based definition of quality when studying the service sector and therefore developed the expression of "service quality".

For this particular study, only one definition was chosen and used for the purpose. Considering the research questions, Parasuraman et al. (1985) applied the definition of quality, i.e. “The difference between customer expectation of service and customers’ perceptions.".

The majority of the research up to date has attempted to use the SERVQUAL model to assess the quality of the service in an organization. This model was introduced by Parasoarman in 1985 for the first time. SERVQUAL comprises 22 items with five dimensions, namely- tangibles, reliability, responsiveness, assurance & empathy, used to track service quality trends over time.

The relationship between service quality and customer satisfaction is becoming crucial with the increased level of awareness among bank customers Demographic characteristics should be considered by bank managers to understand their customers (Zeithamal, 2004).

Banking is a customer-oriented services industry; the customer is the centre of attention and customer service has to be the distinguishing factor. The challenge for banks is to lower costs, increase efficiency while improving the quality of their service, and increase customer satisfaction (Chakravarty, 1996).

There is an increase in competition in the banking industry because of new banks are establishing constantly This kind of research can help banks achieve a competitive advantage through assessing the expectations of their customer.

As stated by Kotler& Armstrong (2010), satisfaction is defined as a person’s feelings of pleasure or disappointment resulting from the “comparison of service/product’s perceived performance in reference to expectations."  Customer’s feelings and beliefs also affect their satisfaction level. Continuous measurement of satisfaction level is necessary in a systematic manner (Chakravarty et al., 1996). Because satisfied customer is the real asset for an organization, it ensures long-term profitability even in the era of great competition Cronin et al. (2000).

1.2 Profile of Berhan International Bank

Berhan International Bank S.C was formed in accordance with Article 304 of the Commercial Code of Ethiopia with the objective of operating in the banking industry. This objective has been ensured in Article 3 of the Memorandum of Association of the Company. The Bank was registered and licenced by the National Bank of Ethiopia on June 27, 2009, with an authorised capital of $300,000,000 and subscribed capital of Birr 154,736,000 divided into shares of 1000 Birr par value each.

Berhan International Bank S.C.'s vision is to be a radiant and trustworthy bank in excellence and its mission is to provide diverse financial products, deploying motivated and qualified human resource as well as up-to-date technology with highest ethical standard to create maximum value to customers and shareholders. Some of their values include standing for quality service, promoting utmost respect to customers, upholding innovation, excellence and progress, believing in professionalism and team spirit, and standing for integrity and loyalty.

The purpose of this study was to use this model to assess the consumer’s perception of service quality and its effect on customer satisfaction in BIB for the purpose of identifying areas that have weaknesses in terms of satisfying customers’ perception of service quality and filling the gap in service quality.

Customer satisfaction has become important due to increased competition, as it is considered very important factor in the determination of banks for purposeful achievement of competitive advantage (Berry et al., 2002).

1.3 Operation Definition of Key Words

SERVICE QUALITY: For this particular study, only one definition was chosen and used for the purpose. Considering the research questions, Parasuraman et al. (1985) applied the definition of quality, i.e. “The difference between customer expectation of service and customers’ perceptions.".

CUSTOMER Satisfaction: As stated by Kotler & Armstrong (2010), satisfaction when

the perceived service greater than expected.

PERCEPTION of Service: Based on the attitude of the individual, the perception of service may differ but it is related with the expectation of service.Perception of service quality by the customers depend on the level the gap between the service the customer expects to receive and what he or she perceives. Parasuraman et al. (1985)

1.4 Statement of the Problem

The banking industry worldwide is undergoing transformation. The driving force for this attitude is globalisation, as observed by Abu Muammar (2005). Currently,  the dynamic changes experiencing in the global business and marketing environment will be continue due to these changes in the global market.

Competition among banks is stiffer than any other time in Ethiopia because of many new banks have been established in the past few years. Banks are the financial service providers, producing and selling management of the public funds as well as performing various significant roles in the economy of any country.

In this industry, many customers are switching banks due to unsatisfactory services, as stated by Angur (1999). A business can achieve success only by understanding and fulfilling the needs of customers. In an organisational setting, the aim is to achieve the organisational objective of bringing profit to the organisation (Stanford, 1996).

A customer is the king in a service-oriented industry like bank; it is very important to identify the factors which influence customers to choose their financial institution, their perceptions of those factors, and their level of satisfaction.

In Ethiopia, many studies about service quality in banks showed inefficiency and lack of quality. As stated by Abreha (2015), some of the major problems that are possible to find in private banks of Ethiopia are

  • Lack of good information provider and lack of different service access (Network).
  • Inadequate facilities and equipment required to provide modern banking services.
  • Absence of frequent training programmes for the staff to shape up their attitude towards


  • Not doing what had been promised.

This paper examines customers' perception of service quality and its effect on customer satisfaction in BIB. This bank was selected because it is new for the banking industry and has a minimum experience compared to the other banks operating in Ethiopia. According to the study by Chakravarty (1996), one of the determinants of success of a firm is how customers perceive the resulting service quality, as this is the key driver of perceived value. It is the perceived value which determines customer satisfaction. Considering the problem stated above, BIB may have some related problems as it is new to the industry; the very purpose of this research paper was to identify the perceived service quality and its effect on customer satisfaction.

In general, a lack of strong service quality could possibly result in the loss of loyal customers, which creates a fertile ground for loss of deposit and hence profit. To maximise the benefit from their investment decisions, the gaps must be identified.

1.5 Research Questions

The researcher attempted to get answers to the following research questions regarding the perception of service quality by customers and its effect on customers’ satisfaction:

  1. What were the customers’ perceptions of the BIB’s service quality in terms of the five service quality dimensions?
  2. What was the level of customer satisfaction with the service they accepted?
  3. How was the relationship between the service quality dimensions and customer satisfaction in BIB?
  4. What is the effect of service quality on customer satisfaction?
  5. Which dimensions of service quality need improvement in BIB?

1.6 Objectives of the Study

This study has general and specific objective.

1.6.1 General Objective

The general objective of the study was to investigate the effect of service quality on customer satisfaction.

1.6.2 Specific Objectives

The specific objective of the study was:

  1. A) To identify customers’ perception using reliability, tangibles, assurance, empathy and responsiveness dimensions in the case of Berhan International Bank. B) To measure the level of customer satisfaction.
  2. To measure the       effect of          tangible dimension of service quality on        the

customer satisfaction at BIB.

  1. To measure the effect of reliability dimension of service quality on the customer satisfaction at BIB.
  2. To measure the effect of the responsiveness dimension of service quality on customer satisfaction at BIB.
  3. To measure the effect of assurance dimension of service quality on the customer satisfaction at BIB.
  4. To measure the effect of empathy dimension of the service qualityon on customer satisfaction at BIB.

1.7 Significance of the Study

The importance of this study was to give an insight into a practical situation in BIB, i.e. its service quality from customers’ perspectives, and also to identify the gap between management’s perception of service quality and that of their customer perception.

The study was also a significant contribution to research on effect of service quality in customer satisfaction Those interested in conducting further research in this area will be able to find materials for reference.

1.8 Scope of the Study

The study was conceptually designed to identify the perception of service quality in BIB and its effect on the customers’ satisfaction by taking the expectations for excellent banks service, which would have a score of strongly agree (5) for all statement.BIB has 76branches and sub branches operating in Addis Ababa, Ethiopia.These branches are divided into three parts by the standard of BIB: green, which has a high customer number and operates in main business areas of Addis Ababa Yellow have fewer customers compared to green and red; the number of customers is not meeting the expected vision.

This study focused on branches which have a lot of customers related to other branches which are under main business area or greenbranch. Because reliable and valuable data would be obtained in this geographical area related to other branches, the researcher selected all 10 green branches.

By using the service quality model SERVQUAL and by taking the expectations of excellent banks, the statement and the perception of customers on service quality were measured by the SERVQUAL method, as well as the effect on customer satisfaction. sample was selected to represent the population and analysed to be concluded for the sample. Additionally, the main source of this data could be a questionnaire, an interview, or secondary data.

1.9 Limitations of the Study

findings of this study may not give a general picture of the service quality and customer satisfaction of banking sector in Ethiopia. This was because of it is difficult, costly and time-consuming to conduct a census survey on all of the Banks and because there is not enough time for the study.

1.10 Organisation of the Study

This thesis was organised into five chapters. The first chapter was an introduction, which consisted of the background of the study, operational definition of key words, problem statements, objectives, significance of the study, scope and limitations of the study. In the second chapter of the paper, a literature review presents various theoretical concepts that are related with service, quality, service quality dimensions, Service quality measurement models and customer satisfaction. The third chapter presents details of the research design, sample size determination, sampling technique, data source and collection method, procedure of data collection, questionnaire and method of data analysis. In chapter 4, analyses of collected data and interpretations of the analysed data are presented. The final chapter presents summaries of findings, conclusions and possible recommendations.Construction and Business Bank


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