Effect of Service Quality on Customer Satisfaction and Loyalty in Ethiopian Private Banks

In Ethiopia, information on service quality, customer satisfaction, and loyalty in the banking sector in general and in private banks in particular is scarce. The primary objectives of this study were to determine whether customers of private banks in Hawassa, Ethiopia, are satisfied and loyal to their services, and to determine whether customer satisfaction plays a mediating role between service quality and customer loyalty. A self-administered questionnaire was used to collect primary data from 238 customers of nine private banks (response rate of 195 = 81.93%). The questionnaire contained 18 items for the five dimensions (tangibility, reliability, responsiveness assurance and empathy) of the SERVPERF model, and five items each for customer satisfaction and loyalty. Service quality, customer satisfaction, and loyalty were significantly correlated with service quality dimensions. Customer satisfaction was a strong partial mediator between service quality and customer loyalty. Present study showed that greater attention on reliability, responsiveness, and assurance dimensions would increase customer satisfaction and loyalty toward private banks.