ADDIS ABABA UNIVERSITY

SCHOOL OF GRADUATE STUDIES

DEPARTMENT OF ACCOUNTING AND FINANCE

BANK SELECTION DECISION: FACTORS

INFLUENCING THE CHOICE OF BANKING SERVICES

By: Goiteom W/mariam

June 2011
Addis Ababa
 BANK SELECTION DECISION: FACTORS

INFLUENCING THE CHOICE OF BANKING SERVICES

A Thesis Submitted to the School of Graduate Studies of Addis

Ababa University in Partial Fulfillment of the Requirements for the

Degree of Master of Science in Accounting and Finance

By: Goiteom W/mariam

Advisor: Dr. Ulaganathan S.

June 2011
Addis Ababa
 ADDIS ABABA UNIVERSITY

SCHOOL OF GRADUATE STUDIES

DEPARTMENT OF ACCOUNTING AND FINANCE

BANK SELECTION DECISION: FACTORS

INFLUENCING THE CHOICE OF BANKING SERVICES

By: Goiteom W/mariam

DEPARTMENT OF ACCOUNTING AND FINANCE

Approved by the Board of Examiners

__________________________________ ___________ ___________

Chairman, Department of Accounting and Finance Signature Date

__________________________ _______________ ____________

Advisor Signature Date

________________________ __________________ _____________

Internal Examiner Signature Date

__________________________ ________________ _____________

External Examiner Signature Date
 DECLARATION

I hereby declare that this submission is my own work and that, to the best of my

knowledge and belief, it contains no material previously published or written by

another person nor material which has been accepted for the award of any other

degree or diploma of the university or other institute of higher learning, except where

due acknowledgment has been made in the text.

______________________________ __________ ___________

Candidate’s Name Signature Date

Advisor’s Approval

This Thesis has been submitted for examination with my approval as a University advisor.

__________________________ ____________ ____________

Advisor’s Name Signature Date

i
 ACKNOWLEDGMENTS

First and foremost, I would like to express my gratitude to my advisor Dr. Ulaganathan

Subramanian for his invaluable and constructive contributions throughout this study. My

deepest appreciation goes to the School of Business and Public Administration of AAU for

providing financial support to conducting this thesis and Aksum University for giving me the

chance to learn Masters Degree.

I am also indebted to all my best friends who had taken the endeavors to voluntarily

administer the questionnaire on my behalf; special thanks to all of them for their material and

moral support throughout the data collection period. My heartfelt thanks also go to my friends

G/yessus G/hiwot (Defo) and Bahre Gebru for their technical, material, and moral supports.

For they have devoted unreserved efforts to comment and edit my work before it has sent to

advisor, the research time was a lovely moment for me. G/medhin G/silassie and Berhe

W/mariam also deserve thankfulness for participating in the survey study.

Last but not least, I would like to extend my gratitude to all my friends, colleagues and my

beloved family who have supported and motivated me to come this far. My sincere thanks

and appreciation goes to you all.

ii
 STATEMENT OF CERTIFICATION

This is to certify that the thesis entitled “Bank Selection Decision: Factors Influencing

the Choice of Banking Services” submitted by Mr. Goiteom Woldemariam to Addis

Ababa University towards partial fulfillment of the requirements for the award of the

degree of Master of Science in Accounting and Finance (School of Graduate Studies)

is a genuine record of the work carried out by him under my supervision and

guidance.

Dr. S. Ulaganathan

Date: ________________________

iii
 DEDICATION

Dedicated to MAM!!!

iv
 TABLE OF CONTENTS

CONTENT PAGE
Declaration--------------------------------------------------------------------------------------------------i
Acknowledgment------------------------------------------------------------------------------------------ii
Statement of Certification-------------------------------------------------------------------------------iii
Dedication-------------------------------------------------------------------------------------------------iv
Table of Contents------------------------------------------------------------------------------------------v
List of Tables---------------------------------------------------------------------------------------------vii
List of Figures-------------------------------------------------------------------------------------------viii
List of Acronyms-----------------------------------------------------------------------------------------ix
Abstract-----------------------------------------------------------------------------------------------------x

CHAPTER ONE: INTRODUCTION----------------------------------------------------------------- 1

1.1 Background of the study----------------------------------------------------------------------------- 1
1.2 Statement of the Problem---------------------------------------------------------------------------- 3
1.3 Objectives of the Study------------------------------------------------------------------------------ 4
1.4 Specific Research Questions------------------------------------------------------------------------ 4
1.5 Significance of the Study---------------------------------------------------------------------------- 5
1.6 Scope and Limitations of the Study---------------------------------------------------------------- 5
1.7 Organization of the Paper--------------------------------------------------------------------------- 6

CHAPTER TWO: REVIEW OF LITERATURES--------------------------------------------------- 7

2.1 Definition of Terms---------------------------------------------------------------------------------- 7
2.2 Customers Behaviour-------------------------------------------------------------------------------- 9
2.2.1 Steps in the Customer Decision Process---------------------------------------------- 9
2.2.2 Influences on Customers Decision--------------------------------------------------- 10
2.3 Customers Satisfaction----------------------------------------------------------------------------- 12
2.4 Bank Selection Criteria---------------------------------------------------------------------------- 15
2.5 Gender Based Difference in Bank Choice------------------------------------------------------- 28

CHAPTER THREE: RESEARCH DESIGN AND METHODOLOGY------------------------- 31

3.1 Source of Data and Sampling--------------------------------------------------------------------- 31
3.2 Research Design------------------------------------------------------------------------------------ 32
3.3 Data Collection Method---------------------------------------------------------------------------- 33
3.4 Data Analysis and Interpretation------------------------------------------------------------------ 36

v
CHAPTER FOUR: DATA ANALYSIS AND DISCUSSIONS--------------------------------- 37
4.1 Descriptive Analysis-------------------------------------------------------------------------------- 37
4.1.1 Customers Profile----------------------------------------------------------------------- 37
4.1.2 Banking Behaviour of Customers---------------------------------------------------- 41
4.1.3 Customers Usage of Banking Services---------------------------------------------- 43
4.1.4 Customers Service Needs-------------------------------------------------------------- 44
4.1.5 Customers Satisfaction with Banking Services------------------------------------- 45
4.1.6 Intention of Customers to Continue Dealing with their Customer Banks------- 47
4.2 Factor Analysis-------------------------------------------------------------------------------------- 47
4.3 Factor Formulation--------------------------------------------------------------------------------- 49
4.4 Explanation of Bank Selection Factors---------------------------------------------------------- 50
4.5 Reliability Test-------------------------------------------------------------------------------------- 54
4.6 Ranking of Importance of Bank Selection Criteria--------------------------------------------- 54
4.7 Gender Based Description of Factors------------------------------------------------------------ 56
4.8 Gender Based Ranking of Importance----------------------------------------------------------- 58
4.9 Ranking of Importance Based on Occupation and their Explanation------------------------ 60

CHAPTER FIVE: CONCLUSION AND IMPLICATIONS-------------------------------------- 64

5.1 Conclusion------------------------------------------------------------------------------------------- 64
5.2 Recommendations---------------------------------------------------------------------------------- 66

REFERENCES
APPENDICES
Appendix A: Survey Questionnaire (Amharic Version)
Appendix B: Survey Questionnaire (English Version)
Appendix C: Statistical Results of Factor Analysis

vi
 LIST OF TABLES

Title Page

Table 1: Results of profile data of the respondents---------------------------------------- 39

Table 2: Distribution of respondents’ Age by occupation-------------------------------- 40

Table 3: Rank of banks used by the respondents------------------------------------------ 42

Table 4: Respondents Usage of Banking Services---------------------------------------- 43

Table 5: Respondents need of additional bank service----------------------------------- 44

Table 6: Respondents degree of satisfaction with the bank services-------------------- 45

Table 7: Future intention of customers with their customer banks---------------------- 47

Table 8: Results of factor analysis----------------------------------------------------------- 53

Table 9: Ranking importance of bank selection criteria factors------------------------- 56

Table 10: Ranking importance of bank selection factors by gender-------------------- 59

Table 11: Ranking importance of bank selection factors by occupation--------------- 61

vii
 LIST OF FIGURES

Title Page

Figure 1: The customer decision-making process--------------------------------------------------- 9

Figure 2: Influences on customer decision making------------------------------------------------ 10

Figure 3: Study sample design------------------------------------------------------------------------- 33

Figure 4: Respondents bank affiliation period------------------------------------------------------ 41

viii
 LIST OF ACRONYMS

AHP Analytical Hierarchy Process

AIB Awash International Bank

ATM Automated Teller Machine

BOA Bank of Abyssinia

CBE Commercial Bank of Ethiopia

CBO Cooperative Bank of Oromia

CP Customer Preference

CPA Principal Components Analysis

DB Dashen Bank

ERCA Ethiopian Revenues and Customs Authority

KMO Keiser-Meyer-Olkin

LIB Lion International Bank

n.a. no author

n.d. no date

SPSS Statistical Package for Social Science

UB United bank

WB Wegagen Bank

ix
 ABSTRACT

To plan a suitable marketing strategy to keep existing customers and for attracting new

customers, commercial banks need to identify the criteria on which customers determine their

bank selection decision. Hence, the purpose of this study is to examine the significance of

bank selection criteria and how customers rank the factors based on their importance level to

patronize banks and banking services. It also intended to present an analysis of gender

differences in the relative importance of choice criteria in respect of selecting a bank and to

elicit the opinion of bank customers on any extra services needed to be offered by banks. Both

quantitative and qualitative methodology, using responses given by 201 customers in Addis

Ababa city from different occupation (students, employees and businessmen), is employed in

the analysis. A non-probability convenience sampling was used and data was factor analyzed

to reduce the number of total variables in to manageable way.

Finding from this study reveal that the most two important bank selection criteria for

customers are “convenience” and “service provision” for the entire customers while it is

“bank’s image” as the second most important factor for male customers. On the other hand,

the least two important factors of bank selection for customers are “financial benefits/

technology”, “reputation” and “promotion strategy” whereas “attractiveness” for female

customers. Given this findings, it is recommended that hierarchical information integration

may be a potentially useful method for bank managers to study complex decision making

problems such as bank choice.

Keywords: Bank Selection Criteria, Customers, Banks, Banking Service

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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

The banking industry has been characterized by increasing competition since the early

1980s (Blankson et al., 2007). This has been the result of a number of interrelated factors

such as competition and deregulation that have revolutionized the distribution of many

financial services. In other words, an increased competition resulting from a decade of

deregulation of the financial services industry has meant that banks find themselves faced

with the task of differentiating their organizations and their offerings as a means of

attracting customers (Blankson et al., 2007).

The concern of how customers choose banks has been given considerable attention by

researchers (for example: Blankson et al., 2007; Mokhlis, 2009; Mylonakis, 2007;

Awang, 1997; Boyd et al., 1994 and Almossawi, 2001). Exploring such information will

assist banks to recognize the appropriate marketing strategies needed to attract new

customers and retain existing ones (Kaynak and Kucukemiroglu, 1992). With growing

competitiveness in the banking industry (Grady and Spencer, 1990), and similarity of

services offered by banks (Holstius and Kaynak, 1995), it has become increasingly

important that banks identify the factors that determine the basis upon which customers

choose between providers of financial services. The relevant literature indicates that a

great deal of research effort has been expended to investigate bank selection criteria for

broad categories of customers (Yue and Tom, 1995).

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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

Modern banking in Ethiopia introduced in 1905. At the time, an agreement was reached

in between Emperor Minelik II and a representative of the British owned National Bank

of Egypt to open a bank which leads to Bank of Abyssinia launched in Feb.16, 1906 by

the Emperor (Abraha et al. 2005). This event marked the introduction of banking in the

country. The Bank of Abyssinia was given a 50 years pleasure and was engaged in

issuing notes, collecting deposits and granting loans, but its clients were mostly foreign

businessmen and wealthy Ethiopians (Mauri, 2003).

Ethiopian banking is flourishing. Financial results for the 2010 fiscal year prove an

industry enjoying high growth, high profits, and high dividends. Even in the middle of a

challenging situation, all key areas of banking operations: collecting deposits, providing

loans, and foreign exchange dealing, showed growth of more than 20 percent. Even

though sharing strong expansion, there are of course prominent variations along with

banks in terms of their aggregate size, revenue sources, customer focus, loan

concentration, and operational efficiency1. Presently, there are 15 banks in Ethiopia of

which 12 are private banks2 and the rest are government owned banks. Moreover,

looking ahead, banks will surely be confronted by the entry of six new banks (namely:

Abay, Enat, Hawassa, Debub Global, Noah, Zam-Zam) and other financial institutions.

With growing competitiveness in the banking industry (Grady and Spencer, 1990), and

similarity of services offered by banks (Holstius and Kaynak, 1995), it has become

1
See the survey in access capital (December 2010), where they present their review on Ethiopian
investment specifically on the banking sector
2
Abyssinia, Awash, Berhan, Bunna, CBO, Dashen, Lion, NIB, OIB, United, Wegagen, and Zemen (April.
2011)
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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

increasingly important that banks identify the factors that determine the basis upon which

customers choose between providers of financial services. In this regard, the basic aim of

the study is to examine the basic motivational factors in customers‟ bank selection in

Addis Ababa city. In order to achieve the research aim, the study has adopted both

quantitative and qualitative research approach specifically survey method through

personally administered questionnaires (both quantitative and qualitative).

1.2 Statement of the Problem

A number of studies have been undertaken to analyze factors that affect customers‟

preference in banking services. Among these studies include Mokhlis et al. (2008) who

examined the determinants of bank selection criterion in Malaysia considering

undergraduate students; while Mokhlis (2009) attempted to analyze gender-based choice

decisions. Correspondingly, in Bahrain (Almossawi, 2001), a case of college students and

in Greek (Mylonakis, 2007), a research task of customer preferences in the home loans

market were done. Other studies are also undertaken in Europe (Bosnia & Herzegovina

by Cicic et al., 2003; Greek by Mylonakis, 2007) and Africa (Ghana by Blankson et al.,

2007; Nigeria by Maiyaki et al., 2010; Maiyaki, 2011) countries on the issue of bank

selection criteria in line with customers‟ preference: why and how they select a particular

bank to be served there. Although such studies have contributed substantially to the

literature on bank selection, their findings may not be applicable to other countries like

Ethiopia, due to differences in cultural, economic and legal environments.

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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

To the best of the researcher‟s knowledge, there exists no previous research work in

Ethiopia concerning the banking selection criteria of customers. Therefore, this study is

particularly intended to examine the determinants of customers‟ bank selection in Addis

Ababa City. Such a study is hopefully expected to fill the gap in literature by scrutinizing

the determinants of customers‟ bank selection in Addis Ababa City.

1.3 Objectives of the Study

The overall objective of the study is to investigate the main determinants that affect

customers‟ selection of banking services.

Specific Objectives

 To determine the criteria that customers consider important when selecting a bank

and how those criteria are prioritized according to their importance.

 To identify either any significant gender discrepancy among customers in

selection of a bank or not.

 To assess whether customers require additional services apart to the services

currently offered by the bank of their choice or not.

1.4 Specific Research Questions

To achieve its objectives, the study has raised the following research questions.

1. What factors do customers consider important in selecting their choice of a bank and

what are the most important factors?

2. Which bank(s) are most preferred banks in Ethiopia based on the sample under

consideration?

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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

3. Which banking facilities are the most frequently used by customers?

4. Do customers have an intention to continue with their respective bank?

1.5 Significance of the Study

The research has examined the determinants of customers‟ bank selection criteria as well

as evaluated the relationship between personal status of the customers and sound decision

of selection. The importance of this study can be viewed from two dimensions:

theoretical contributions and practical implications. Theoretically, the study fills an

important gap in the literature that is, exploring bank selection criteria for potential

customers in the Addis Ababa region. Therefore, the findings of this study can add to the

existing body of the literature and can serve as a starting point on which future studies

can be built.

On the practical side, this study can help bank decision makers (both governmental and

private banks) to identify the major factors that may determine bank selection decisions

among customers. Such information should help the management of practicable banks in

formulating appropriate marketing strategies for reaching and attracting customers.

1.6 Scope and Limitations of the Study

This research focuses on a specific sector of customers and thus the results do not

represent the general public. As the survey conducted was only restricted to Addis Ababa

region and participated merely some occupations results may vary if research is

conducted in other parts of Ethiopia in addition to other occupations. And further if the

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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

study is conducted taking all customers of the selected organizations and business area

the results may vary. It is limited only to customers of several banks in Addis Ababa

City from different occupations such as students from Addis Ababa University,

businesspersons (merchants) from Merkato and employees from the Ethiopian revenues

and customs authority. Some distributed questionnaire are left unreturned thus, this has a

bit reduced the sample size.

1.7 Organization of the Paper

The thesis is structured in five chapters as follows. Following introduction in the first

chapter, chapter 2 contains a review of the literature including customers‟ behavior and

satisfaction on banking services and bank selection criteria by different groups of people

and gender- based selection criteria. The research design and methodology are presented

in chapter 3. Specifically, this chapter shows the research sampling method followed by

methods used in collecting data and in the study are all outlined. Furthermore, statistical

methods used to analyze the data are also discussed. In chapter four, the results and

findings of the study are also discussed. Finally, the last chapter enclosed the summary of

findings, conclusions drawn and recommendations and areas where further research may

be productive.

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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

CHAPTER TWO

REVIEW OF LITERATURES

This chapter reviews the studies that have been carried out to date. Previous studies

conducted in this area are organized based on their chronological context.

2.1 Definition of Terms

Banks are the major type of deposit taking institution; they make their living

predominantly by taking deposits which represent their liabilities and loaning these funds

to borrowers which represent their assets. They loan out funds at a higher interest rate

than the funds, and the difference represents their gross profit margin before expenses

and tax. In addition, banks can earn commissions and fees by selling various products

such as foreign exchange services, safe custody services, advice, account management

charges, credit card facilities, insurance and so forth (Pilbeam, 1998).

Bank is an institution which deals in money and credit. It accepts deposits from the public

and grants loans and advances to those who are in need of funds for various purposes.

Banking is an activity which involves acceptance of deposits for the purpose of lending or

investing. In addition to accepting deposits and lending funds, banking also involves

providing various other services along with its main banking activity. These are mainly

agency services, but include several general services as well. A banker is one who

undertakes banking activities, accepting deposits and lending money for different

purposes3.

3
See business studies in India, n.a., nature and scope of banking number 32
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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

Hart (1931, p.11) defined a banker or bank as a person or a company carrying on the

business of receiving money, collecting drafts, for customers subject to the obligation of

honoring cheques drawn upon them from time to time by the customers to the extent of

the amounts available on their current accounts.

There is no statutory definition of a banker‟s customer, and so one has to refer to the

decisions of the courts in order to discover the principles which determine whether or not

a person is a customer. In the United States, Sect. 4-104 (1) (e) (1957 of the Uniform

Commercial Code defines as “any person having an account with a bank or for whom a

bank has agreed to collect items and includes a bank carrying an account with another

bank”. As stated by Lord Davey in Great Western Railway Co. V. London and County

Banking Co. Ltd., in 1901, “there must be some sort of account, either a deposit or

current account or some similar relation, to make a man a customer of a banker”.

Role of Banks: The functions of banks are divided into two categories: as primary

functions and secondary functions including agency services. The primary functions of

banks include: accepting deposits and lending money. The most important activity of

banks is to activate deposits from the public. People who have surplus income and

savings find it convenient to deposit the amounts with banks. The second important

function of banks is to grant loans and advances. Such loans and advances are given to

members of the public and to the business community at a higher rate of interest than

allowed by banks on various deposit accounts.

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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

2.2 Customers Behavior

Customer behavior is the process individuals or groups go through to select, purchase,

use and dispose of goods, services, ideas or experiences to satisfy their needs and desires

(Sells, n.d.). Consumer behavior is not only influenced by external factors, but also by

their attitudes and expectations. These attitudes and expectations are constantly changing

in response to a continuous flow of events, information and personal experiences (Peer,

2009).

2.2.1 Steps in the Customer Decision Process

Researchers realised that decision makers actually possess a set of approaches ranging

from painstaking analysis to pure whim, depending on the importance of what they are

utilizing and how much effort the person is willing to put into the decision.

Fig. 1: The customer decision-making process

Problem recognition

Information search

Evaluation of options

Service choice

Post-use evaluation

Source: Adopted from Sells (n.d.), Consumers behavior, pp. 157)

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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

2.2.2 Influences on Customers’ Decisions

Apart from understanding the procedure of the customer decision-making process,

industries also try to determine what influences in customers‟ lives affect this process.

There are three main categories: internal, situational and social influences.

A. Internal influences on customers’ decisions: Service giving organizations know that

one customer‟s ideal treatment can be quite different from that of another customer. You

may think the ideal treatment is a vigorous internet banking, while your best friend

dreams of a typical fast customer service and your father is set on having a friendliness of

the staff in the organization. Some of these differences are due to the way in which

customers internalise information about the outside world such as perception, exposure,

attention and interpretation. Perception is the process by which people select, organise

and interpret information from the outside world (Sells, n.d.).

Fig. 2: Influences on customer decision making

Situational Influences
 Physical Social Influences
environment Culture
Internal Influences  Time Subculture
 Perception Social class
 Motivation Group
 Learning membershi
 Attitudes ps
 Personality Decision
 Age groups Process
Utilizing
 Lifestyle

Source: Adopted from Sells S. (n.d.), Consumers behavior, pp. 157)

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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

A number of different factors in customers‟ lives influence the consumer decision-

making process. Organizations need to understand these influences and which ones are

important in the exploit process to make effective marketing decisions.

B. Situational influences on customers’ decisions: these factors can affect what, where

and how customers utilize their choices from different organizations. It is no secret that

people‟s moods and behaviors are strongly influenced by their physical surroundings

such as advertizing. There is one motto by the advertising archives: “As customers are

exposed to more and more advertising, advertisers must work harder than ever to get

their attention”.

In addition to the physical environment, time is another situational factor. Organizations

know that the time of day and how much time one has to make a utilize affect decision

making. Time is one of consumers‟ most limited resources. We talk about „making time‟

or „spending time‟, and are frequently reminded that „time is money‟. They should

provide fast service for their customers.

C. Social influences on customers’ decisions: Although we are all individuals, we are

also members of many groups that influence our utilizing decisions. Families, friends and

classmates often influence our decisions, as do larger groups with which we identify,

such as ethnic groups and political parties.

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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

2.3 Customers Satisfaction

Attempting to offer all things to all people is difficult, if not impracticable in a

competitive marketplace. Many financial institutions are selecting a few key target

markets and concentrating on trying to serve them better than their competitors.

Generally speaking, customers and business banks have three main targeting choices

(Zineldin, 1996). They can attempt to become financial supermarkets, low-cost

producers, or market nichers: Financial services supermarket strategy is only appropriate

for a few, very large, diversified banks and financial institutions such as Citicorp,

American Express. Low cost producers offer limited services at discount prices and

compete on price. The most obvious examples are discount brokerage firms and money

market funds that offer limited services efficiently.

Specialty or niche banks primarily focus on the needs and desires of a particular market

segment with a particular product mix such as mortgage loans, venture financing, special

trade markets and industry sectors. Many regional and national banks have adopted

niching strategies, targeting market segments where they have key strengths and

experience. Not surprisingly, many small and medium-size institutions are targeting

commercial customers and prospects and avoiding intense competition for consumer

business.

The customers-needs approach requires that banks target their business towards one or all

customers, and towards satisfying some or all of their needs and wants. A bank has to

analyze and consider its strengths and weaknesses, its market opportunity, and its

competitors.
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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

Customer satisfaction is a strategic support to obtain a long term profitable growth. This

may have its own advantages and main results. For instance, more loyalty of customer

can creates a cross selling & up selling of services/ products of one organization, great

customer retention can results a long customer lifetime value for the institution, better

short and long term business performances may also consequences a higher stock returns,

stock value and cash flow less volatile and long period strong competitive positioning can

consequence a market leadership in one institution (Unicredit Group, 2008). Unicredit

group has a strong commitment to be the customer satisfaction leader in Italy. Regarding

the customer satisfaction in the leadership meeting in January 2007 at Turin Lisbon,

Alessandro Profumo quotes:

What is really important is to build a Group where people recognize themselves,

where our employees are happy of being part of the team, where our customers

are satisfied of being our customers because we are the best in terms of service -

or at least because they perceive that we are making a lot of efforts to be the best

at a service level.

Although customer withholding is the goal of the service provider, substitute measures

are typically used owing to the constraints involved in longitudinal studies. These

measures relate to attitudes or future intentions towards the service provider (Levesque et

al., 1996). There are three regularly used measures of generally service quality, meeting

expectations and customer satisfaction (Hausknecht, 1990; Heskett et al., 1994; Jones and

Sasser, 1995 cited in Levesque et al., 1996).

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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

The customers‟ contentment begins with obvious, operational definitions from both the

customer and the organization. Understanding the inspirations, expectations and

requirements of both provide a foundation in how to provide best service to the customer.

It may even provide information on making improvements in the nature of business

(Haque et al., 2009). This is the heart of research into customer satisfaction. Service

quality is one of the customers‟ judgments about an entity‟s overall excellence or

superiority. It is a form of attitude and results from a comparison of expectations to

perceptions of performance received. As Mols defined service quality is a measure of

how well the service level delivered matches customer expectations (Mols et al. 1997).

A study carried out by Haque et al. (2009) found that customer satisfaction arbitrates the

effects of automated bank service quality on financial performance. Customer satisfaction

can thus be considered as the key construct to bank financial performance. However, this

research found that internet service quality had no significant relationship with customer

satisfaction; improvement in the quality aspects of this dimension could enhance overall

satisfaction and thus financial performance.

A study was conducted on the Pakistan customers by Khattak et al. (2010). They

analyzed the customer's satisfaction and awareness level towards the Islamic banking

system and investigated the relationship between different demographic variables and the

satisfaction and awareness of customers by taking a sample of 156 customers. They go to

the point that the major factors were management proficiency, bank‟s personal

knowledge, cost of services, efficiency of transactions, and facilities of parking. In

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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

contrast, advertising campaign, working hours and financial counseling were selected by

the customers as least important factors in choosing banks.

Recently in Malaysia, Munusamy et al. (2010) conducted a study on service quality

delivery and its impact on customer satisfaction in the banking sector. They found that

assurances, tangibles, understanding and responsiveness are the most important factors

that generate customers‟ satisfaction and these factors have a positive relationship with

customer satisfaction. Their finding also indicates that measuring the level of

performance and satisfaction when it comes to the intangible expectations are the most

difficult things for the customers.

2.4 Bank Selection Criteria

Financial industries, especially banks, are becoming highly competitive day by day due to

service differentiation, easiness of service availability, culture based products offering

and technology used in service delivery. Customers are selecting banks considering

various features of the service proposition. Thus, to attract customers, banks are facing

challenges more than ever. But to attract customers it is crucial to know what selection

criteria customers are adopting in selecting banks. Such selection criteria of the

customers open an area of research on bank selection criteria of customers.

Various empirical research using different methodologies and approaches have been

conducted in various parts of the world to investigate the bank selection criteria of the

customers. Frequently these studies examined the question of why people prefer a

specific bank. Among the researchers who did a scientific study on this topic were in

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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

Malaysia (Mokhlis et al. 2008, 2009 & 2010; Haque et al., 2009), Nigeria (Maiyaki, 2008

& 2011; Omar et al., 2006), Singapore (Ta et al., 2000), Canada (Levesque et al., 1996)

and India (Rao et al., 2010). Eventually the importance of the studies started more in

direction of other features of bank choice, like the comparison of customers choice

criteria for single and multiple bank users (Mokhlis et al., 2009) and an analysis of

gender-based choice decision in banking (Omar et al., 2006; Mokhlis, 2009). And

recently the variation in bank choice criteria between distinct cultural groups in Malaysia

was investigated by Mokhlis et al. (2010).

Anderson et al. (1976) studied on customers‟ bank selection decision in USA. He found

that: friends‟ recommendations, reputation of the bank, availability of credit, friendliness

of staff and service charges on accounts are the most important criteria in selecting banks.

The authors‟ study was, however, criticized by Laroche (1986) who claimed that the

authors‟ work was contradictory with previous research that identified location (i.e.

convenience) as an important factor in bank selection. Laroche (1986) findings were later

maintained by Gerrard and Cunningham (2001) and Lee and Marlowe (2003) who

confirmed convenience as important in the choice of banks. Anderson et al. (1976)

findings have however been supported by Kaynak (1991), Ta and Har (2000),

Almossawi (2001) and recently by Rao (2010), who conclude that recommendation by

parents and friends, i.e. peers, was the most important criterion.

In his article about American college students, Schram (1991) found that convenience

remains the primary reason why most college students choose their banks. Family

tradition also seemed an important factor for college students. He noted that sometimes it
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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

takes very little effort to keep the account of a student whose family has been with the

bank for some time. Thus, family loyalty to banks appears to be exhibited among

students.

In their article about American university students, Khazeh and Decker (1992-93)

investigated the consumers‟ decision-making criteria in the United States of America

(USA), considering also the degree of dissimilarity among banks with respect to these

criteria and found that service-charge policy, reputation, competitiveness of loan rates,

time required for loan approval and friendliness of tellers, are the most important factors

in explaining how customers choose banks. In contrast, availability of financial advice

was among the lowest raking determinant attributes.

In the paper of Boyd et al. (1994), the results of the study reveal that reputation, interest

charged on savings accounts, interest charged on loans, quick service, location on city

and hours of operation are viewed as having more importance than other criteria such as

friendliness of employees, modern facilities, and drive-in-service. However, a research by

Awang (1999) examined that customers preferred to deal with banks that can provide

quality services such as fast and efficient service, staff work accuracy, friendliness of

bank personnel and warm reception.

A study by Haron et al. (1994) in the Malaysia, was conducted a survey on 301 Muslim

and non-Muslim commercial bank customers to determine the bank selection criteria.

They found that “fast and efficient service”, “speedy of transactions”, “friendliness of

bank personnel” and “confidentiality of bank” was the four most important factors by

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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

Muslim customers. On the contrary, non-Muslim customers four most important factors

were “friendliness of bank personnel”, “fast and efficient service”, “reputation and image

of bank” and “speed of transactions”.

According to Thwaites and Vere (1995), the student group in British is an important

target audience that is being overlooked by marketing practitioners in the banking sector.

The authors go on to emphasize that the limited information available on students‟

selection criteria of retail banks makes it difficult to be precise about the key drivers

determining the choice of a particular financial service supplier. Their finding revealed

that ATM service is the most important factor in selecting which bank to patronize.

Furthermore, Thwaites and Vere (1995) affirm that college students are less loyal than

the public, expensive to attract, and difficult and challenging for positioning and

differentiation strategies. In view of the fact that students can be perceived to be living on

future income, it is important that retail banks develop marketing strategies attractive to

them as potential customers.

In Finland, Holstius et al. (1995) investigated the determinant factors used in bank

selection decisions by customers. They found that the most influential factors reported

by customers were location near home or work, fast and efficient service,

recommendations of friends and relatives, external appearance, interior comfort of the

bank counter partitions and mass media advertising of the services. Since the least

important factors listed by the respondents were financial counseling services provided,

confidence in the bank manager and a wide range of services offered.

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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

One earlier study reported by (Zineldin, 1996) guides to a well-integrated application of

technology and staff through operations that respond to customer needs encourage

customers to use a whole range of banking products/ services rather than just a few. It

also helps to build loyalty by creating deeper and fuller customer relationships.

Additionally, he found that convenience of location, price and advertising had a minor

impact on bank selection for the customers in Sweden. In Poland, Kennington et al.

(1996) studied on costumers selection criteria for banks. The findings of their survey

disclosed that, as in other countries, the most important variables influencing customer

choice are reputation, price/ cost, convenience and service but with certain variations

related to the Polish context.

With the intention of identifying the determinant factors used by customers in making

bank selection decisions, it was suggested to take into consideration two dimensions,

(Anderson et al., 1976; Khazeh & Decker, 1992; Laroche & Manning, 1984; Edris &

Almahmeed, 1997). First, bank attributes to which customers react in terms of their

importance in choosing a bank. Second, the perceived degree of similarity/dissimilarity

among banks with respect to each of these attributes. This means that the true underlying

determinants of bank selection decisions are functions of both their relative importance

and the perceived degree of dissimilarity among banks (Khazeh and Decker, 1992).

The relative importance of banking services to business customers‟ needs and the true

determinants of bank selection. Ultimately, Edris and Almahmeed (1997) found that the

highest-ranking determinant factors of selecting a bank in Kuwait are: size of bank assets,

efficiency of personnel help in financial emergencies, banking experience, friendliness of

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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

staff, reputation, communications with staff, knowledge of firm‟s business, prompt

provision of services, and availability of branches abroad.

In Ghana, Owusu-Frimpong (1999) has conducted a survey on patronage behavior of

bank customers using an informal telephone interview with six senior bank managers.

Findings from 225 respondents discovered that convenient location and friendly

employees are the most important attributes determining the image of the banks for their

selection decision pursued by size of the bank and profit minded services.

A study conducted by Awang (1999) discovers the factors affecting customers‟

preference in services rendered by various banks in Malaysia. His study showed that

customers prefer quality services than the other factors mentioned. They rank fast and

efficient services and bank image/reputation as their first and second preferences,

respectively. Convenience location and the availability of parking space nearby were

found to be significant in bank selection decision. Thus, opening of more service centers

at strategic location would be to customers‟ convenience. Confidence in bank manager,

external appearances of bank, mass media advertising and recommendation from friends

and relatives were found to be less significant factors in bank selection decision.

In Singapore, Ta and Har (2000) undertook a study on bank selection decision in

Singapore using the analytical hierarchy process (AHP) to access the principal decision

factors used and their relative determinant in bank selection decisions. They concluded

that results of the analysis for the total sample indicated that the bank section decision

process is based primarily on nine determinant selection criteria: high interest rate,

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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

convenient location, and quality of service, self-banking facilities, low charges, low-loan

rates, long operating hours, undergraduate privileges and recommendations.

A study in Bahrain by Almossawi (2001) focused on examining the bank selection

criteria being employed by college students. He used 1,000 sample students from

University of Bahrain. His findings reveal that the chief factors determining college

students' bank selection are: bank's reputation, availability of parking space near the

bank, friendliness of bank personnel, and availability and location of automated teller

machines (ATMs), such as their availability in several convenient locations and 24-hours

availability of ATM service. The paper suggests that it may be necessary to deal with

male and female students as distinctive segments with different priorities in their bank

selection process.

Lee and Marlowe (2003) investigated how customers choose a financial institution for

their checking accounts on 32 participants using both qualitative and quantitative

approach with focus group discussion technique. They were found that, although most

customers‟ value convenience as one of the most important decision-making criteria,

their definitions of convenience varies across customers. The results indicated that

convenience, retail fees and minimum balance requirements, range of the service,

personal relationship and safety are the most important criteria to the US customers.

Another important finding of the study is that the participants facing new financial needs

start their search process from the institution where they have their checking accounts.

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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

Cicic et al. (2004) investigated the attitude of 300 students aged 19-24 years of the

University of Sarajevo in Bosnia and Herzegovina to examine the customers‟ bank

selection criteria. Their findings disclose that the main factors determining students‟

bank selection are: reception at the bank, friendliness of bank personnel, low services

charges, ease of opening a current account, and confidence in bank management. In their

conclusion also they suggest that there are some differences compared with bank

selection process employed by students in developed countries.

Other research literatures Lymperopoulos et al. (2006) examined the importance of

service quality in bank selection and found four distinct factors as the main choice criteria

that influence consumers‟ bank choice. Bank service quality is the most important

element that customers consider in order to select their mortgage providers and establish

a long-term relationship with them. The other three refer to product attributes, access, and

communication.

Mylonakis (2007) studied on customer preferences in the home loans market experience

of the bank customers in Greece. He was used 200 customers in which data was collected

using structured questionnaire. His findings showed that in addition the mortgage product

mix and some cost elements (interest rate, prepayment penalty) other important

influential factors appear, such as the various offers of banks, the bank‟s reputation,

existing cooperation, as well as bank staff. Bank branches proved to continue constituting

the primary distribution channel for mortgage products and services. Promotion through

television plays an important role and seems to affect the customer bank selection.

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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

In Malaysia, Dusuki (2007) studied using self-administered questionnaires involving a

sample of 750 respondents from four different regions. He used banking criteria ranking

as perceived by the respondents are analyzed using Friedman Test. The most significant

determinants perceived to be important for selecting banks were comprise: convenient

location, friendly employees, large, profit minded, slow service and efficient service.

Blankson et al. (2007) conducted a study in three varied cultural settings of

industrialization. Their research was based on the college student group and thus the

results do not represent the public. The study reveals three key dimensions, factors,

strategies that are consistent across all three economies. The paper concludes that open

and liberalized business climate appear to explain consumers' decisions. This poses

generalize-ability questions without further replications and validations. This study did

not examine whether there were consumers‟ switching behaviors involving banks.

Survey results of 350 respondents show that bank selection criteria in overall

significantly differ between Turkish and Greek Cypriots. Besides, priorities of bank

selection factors are also generally different between two communities. Senyücel (n.d.)

found from his study on bank selection criteria on these different geographical area reveal

that the most important bank selection criteria for Turkish Cypriots are availability of

internet banking, where it is paying higher interest on saving accounts for Greek

Cypriots. On the other hand, the least important factor of bank selection for Turkish

Cypriots is recommendation of friends, where it is family tradition for Greek Cypriots.

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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

Rehman and Ahmed (2008) in their study conducted in the city of Lahore (Pakistan)

found that the four most important variables influencing customers‟ choice in selecting a

bank were customer services, convenience, online banking facilities and overall bank

environment. Availability of internet banking was also found to be an important bank

selection factor in another survey conducted by Senyücel (n.d.).

Mokhlis et al. (2008) sampled 350 undergraduate students in Malaysia to identify factors

which influence their bank selection decisions and to examine whether undergraduates

constitute a homogeneous group in relation to the way they select a bank. Using “factor

analysis” they found that undergraduates secure feelings was the most important factor in

influencing the students in selecting a bank. ATM service was the second prioritized

factor followed by financial benefits. The next three criteria, ranked fourth, fifth and

sixth, respectively, were service provision, proximity and branch location that can be

grouped as moderate factors. By contrast, the students considered non-people influential,

attractiveness and people influences which were ranked seventh, eighth and ninth,

respectively, did not play significant roles in influencing their decision in selecting the

bank. It is interesting to note that their finding also shows the responses did not constitute

a homogenous group since gender, stream of study, ethnicity and number of saving

accounts held produced different prioritized factors in bank selection.

According the study of Khan et al. (2008), an investigation on 100 customers of Islamic

bank customers in Bangladesh, religious principles is the key bank selection criterion of

the Islamic bank customers, while customers‟ demography plays some role in

determining which selection criteria matter more than others do. Additionally, findings
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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

for the relationship between bank selection criteria and level of income shows that the

choices of „family and friends‟ and convenient location depend significantly (at 5% level)

on level of income.

In a study conducted by Sanyang (2009) in Gambia on “bank strategic positioning and

factors for bank selection” it was discovered that customers highly regard with low

service charge and availability of ATM services to be the most important criteria in

patronizing banks. The findings of this study are different from all other studies surveyed

so far, in which, low service charge is the most important factor for bank selection

decision. His findings also revealed that safety of funds, speed of transaction and

convenient location are also treated as the most important factors in patronizing banking

services in Gambia.

A study conducted by Kumar et al. (2009) identified eight determinates- branding,

convenience, recommended by peers, required by the company, variety of products and

services, rate charges, flexibility in accounts handling and customer-friendly environment

are the most important factors affecting the decision of the customers on making the

choice of the bank in Malaysia. This paper recommended to banks to be innovative in

creating more types of channels by riding on technological advancement; reducing

customers‟ waiting time and effort should be their main priority and objective.

Similar to the earlier studies of Gerrard and Cunningham (2001) and Lee and Marlowe

(2003), Blankson et al. (2009) was found convenience as the most important factor in

selecting baking services by students in Ghana and United States. They used comparative

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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

cross-national study aimed at revealing the factors determining retail bank selection

among students in different environmental settings. Other findings of the study were

competence, recommendation by parents and free banking and/ or no bank charges.

In India, Rao (2010) conducted research in the area of student banking focusing on

factors that influence their selection of banks. A sample of 312 respondents took part in

this study. The responses were shows reliability is a significant choice criterion, which

includes employee‟s courtesy, parking facility, loyalty programs, brand name, security

system and low charges with the bank. Other factors, which have also increased in

importance are the responsiveness, value added services and convenience. Assurance

factors, such as speedy services, good rate of interest and zero balance account facility

are also significant in importance in motivating choice of a bank.

A study was conducted by Abduh et al. (2010) on the Indonesian customer's attitude.

They targeted the customers of Islamic banks. Finding of his study were that most

customers prefer banks based on announcements of the country‟s council on interest rates

is their first consideration in patronizing a particular bank and puts reason of safety of

fund during the financial crisis, has greater possibility to patronize Islamic banks in

Indonesia. In addition, bank‟s marketing and advertisement also highly influences

individuals to patronize Islamic banks.

In Afghanistan, Farooq et al. (2010) studied the section criteria of Islamic customers in

patronizing a particular bank. They found that the most important factors leading to the

customers‟ choice for selection of Islamic banking products/services are: religious

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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

inclination, recommendation of family and friends, easy access to branch and profitability

of the bank. As the degree of importance of selection criteria of banks is concerned the

results shows quite significance in the educational level and the degree of religious

regulations in the selection of banks. The examination of the results revealed that those

respondents having graduate degrees in diverse avenues are more influenced from the

Islamic teachings and principles in selecting bank in comparison with other respondents

having other academic qualification. The results also show that the less educated

respondents are comparatively more influenced form friends and family.

In their recent study, Shaher et al. (2011) evaluated the major factors that affect the

commercial banks‟ performance in the Middle East region. They based factor analysis

technique in their methodology in order to extract the most essential factors that hinder

the customers in their choice of banks and banking services. Their finding revealed that

bank‟s characteristics (such as, bank size, loan facility and service charges) are

considered as the most important factors in bank selection decision. Quite the opposite,

the sixth factor (other factors like, religion believes and awareness of banks performance)

are considered as the least important factors in the Middle East region customers.

A recent study conducted by Katircioglu et al. (2011) investigates the bank selection

criteria of undergraduate students who are future potential customers of banks from

different regions of the world in a small island economy. They found that availability and

convenient location of ATM services and speed and quality of services are the most

important factors for considering banks and their services for both Turkish and non-

Turkish undergraduate students. Afterward, they conclude that there are not massive
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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

differences in the bank selection factors between Turkish and non-Turkish international

students in the case of a state University in North Cyprus.

Most recently, Maiyaki (2011) in his survey in Nigeria obtained information about the

factors determining the selection and preference of banks by retail customers. He used

417 sample bank customers using multi-stage sampling procedure and found that size of

bank total asset, has the greatest influence on customer choice of banks, followed by

availability of large branch network across the country, then reputation of the bank,

personal security of customer, and then convenient access to bank location. On the other

hand, recommendations of friends/relatives, attractiveness of bank‟s physical structure,

opportunity of telephone banking, availability of assorted retail bank services and

reasonable terms of credit/loans repayment were the factors that have the least influence

on customer choice of banks. Finally he recommended banks management should pay

attention to factors that have significant effect on the choice of banks.

2.5 Gender-Based Difference in Bank Choice

Previous studies listed gender differences as one of few demographic characteristics that

determine the selection criteria employed by customers when selecting a bank. In the first

major study of note, Laroche et al. (1986) found that there are some significant

differences in choice criteria for retail banks in Canada with respect to basic demographic

factors. Among the more interesting findings of this study were that males attached

greater emphasis on overdraft privilege whereas females are more concerned with

friendliness of staff and safety of funds.

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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

A study by Boyd et al. (1994) in the USA reported that males are more interested in quick

service and convenience of location, as opposed to females, who placed a greater

emphasis on availability of current accounts and interest on saving accounts. However,

the importance of the differences found was unclear because the authors did not test for

significance.

In Bahrain, Almossawi (2001) conducted a survey on bank choice criteria and reported

that male and female college students exhibited significant differences in 22 out of 30

bank selection factors. According to his findings, male students prefer banks based on:

availability of parking space nearby, availability of ATM in several locations and

convenient ATM locations conversely banks‟ reputation and 24 hours availability of

ATM service are the most important factors in selecting banks by female respondents.

In the study of Gerrard and Cunningham (2001) using a sample of Singapore‟s

undergraduates, it was found that males placed greater importance on „appearances‟ than

their female counterparts.

Cicic et al. (2004) conducted a study under the title of bank selection criteria employed

by students in a southeastern European country specifically in Bosnia and Herzegovina

and they found that 52% of the respondents already have bank accounts. The male

proportion of the population has more bank accounts opened (66.4%), in comparison with

the female proportion of the population (33.6%).

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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

Another study done by Omar (2008) analyzes the factors that affect the choice of retail

banks by men and women customers in Nigeria. He found that the most important factor

considered by male customers was safety of funds, followed by efficient service and

speed of transaction. Female customers on the other hand, considered speed of

transaction as the most important factor, followed by safety of funds and

recommendation by relatives and/or friends.

In a more recent study conducted in Malaysia, Mokhlis (2009) found that six factors

influence bank preference to both male and female are: attractiveness, marketing

promotion, Automated teller machine (ATM) service, proximity, people influences and

financial benefits. To sum up, the results generate an interesting point in the researchers

that gender differences do not discriminate the attitudes toward banking services and

selection of bank.

In general, it can be concluded that even though there have been studies on bank selection

criteria‟s in some developed and developing nations, as per the knowledge of the

researcher, there appear to be no studies that examine the factors affecting customer

preferences in banking services in Ethiopia. It is, therefore, not known whether the

customers of the Ethiopian banks choose a bank based on proximity, effective service,

bank‟s reputation, friendliness of bank personnel, or any other criteria. In this context, the

purpose of this study is to investigate the determinants affecting customers‟ section in

banking services in Addis Ababa City.

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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

CHAPTER THREE

RESEARCH DESIGN AND METHODOLOGY

This chapter gives an outline of the research methodology used in the study. Therefore,

the source of data for the study, data and sampling technique, design of the research, a

description of the method of data collection techniques is given. In the last part of this

chapter the statistical method used to analyze the data, was discussed.

3.1 Source of Data and Sampling

The target population for the study was included students, businessmen and employees

dwelling in Addis Ababa City. Forty two percent of the respondents are students of Addis

Ababa University because of their convenience, 36 percent are employees from different

regions of the Ethiopian revenues and customs authority, namely Mexico, Kaliti and

Megenagna branches)4. These employees were selected based on the assumption that

they have the capacity to save and deposit money in banks because their salary is

relatively attractive. While the remaining are businessmen from Merkato5.These groups

are expected to represent all types of population categories in the city, while conducting

assessment of the determinants that affect customers‟ preference in banking services. The

sample targets are presumed to often use bank services to save, receive and transfer

money to and from different corners of the country. Given the nature of the study (due to

the unavailability of sampling frame of banks‟ customers or infinite population), a non-

4
A name of places found in different regions of Addis Ababa where Ethiopian revenues and customs
authority is situated (Megenagna- Head office & Eastern region, Mexico- Western region).
5
The largest market place in Addis Ababa, Ethiopia as well as in Africa (See
http://wikimapia.org/3616123/ Merkato-one of-the largest-open-market-in-Africa.
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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

probability (convenience) sampling was chosen. Therefore, a sample size of 201

customers was selected from the defined target population. The Convenience sample

selection of the respondents has been accomplished by distributing the questionnaires to

the available customers of the sampled occupations. However, an attempt was made to

achieve gender balance in the selection of the respondents.

3.2 Research Design

The research design depicted below was used to study the determinants that affect

customers‟ preferences in banking services among several banks, and the quantitative and

qualitative data has been used to assess those factors. Survey questions of the

questionnaire form were gathered from various studies (Maiyaki, 2011; Katircioglu et al.,

2011; Rao, 2010; Mokhlis, 2009; Blankson et al., 2007; Cicic et al., 2004; Almossawi,

2001) in the relevant literature and revised and adopted to the Ethiopian banking system.

For the sample design to be employed AA6 customers, see figure below.

6
Addis Ababa, the capital city of Ethiopia

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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

Fig. 3: Study sample design

Customers of
Convenience Out of 9 Regions & 2
different
City Administrations
Banks in AA

Selection Criteria for Representation Convenience

Sampling

Businessmen Student Employee Occupation

Merchants Students in ERCA Employees

in Merkato AAU

End
Samples

Source: Developed by the researcher

3.3 Data Collection

It is the purpose of this study to understand determinants that affect customers‟ selection

of banks using the above design. In order to achieve the research aim, the study was

adopted both quantitative and qualitative research approach specifically survey method

through personally administered questionnaires including close-ended and open-ended

questions. This study was used the cross-sectional survey method because the data was

collected at a point in time. The quantitative and qualitative measurement approach was

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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

employed in this study in view of the popularity of the previous studies (see among

others Lee and Marlowe, 2003; Blankson et al., 2007; Khan, 2008 and Mokhlis, 2009).

The adoption of the survey design, in this study, is to gather information that was not

available from document records and make conclusions about the determinants that affect

to customers in selecting a particular bank, and their significance in banks based on

responses of a sample of respondents. In this regard, Fowler (1984) noted that the

strengths of survey methods that result in their wider use included the value of statistical

sampling, consistent measurement, and the ability to obtain information not

systematically available elsewhere or in the form needed for analysis.

The questions were organized into three sections as follows: The first section of the

questionnaire asked respondents to obtain their personal background, questions regarding

their gender, age, occupation, level of income and so forth. The second section of the

questionnaire sought to obtain information on the banking behavior of respondents. The

respondents were asked for the name of banks at which banking services were used;

which bank was the respondent‟s main bank7 and which was the respondent‟s subsidiary

bank(s). The length of time that customers have been with their banks was also measured.

The final section of the questionnaire was designed to rate the relative importance of 24

bank attributes when choosing which banks to patronize. They were measured on a four

point Likert-type scale of importance ranging from (4=most important) to (1=not

important at all). The list of criteria was based on previous similar studies (Omar et al.,

7
In the present study, the term “main bank” was defined as the bank with which the respondents conducted
most of their transactions
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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

2006; Mokhlis et al., 2008; Mokhlis et al., 2010; Maiyaki, 2011), and personal experience

of the researcher.

To determine the probable usefulness of the questionnaire and whether further revision is

needed prior to conducting the survey, the questionnaire was pilot tested. The researcher

distributed the questionnaire to 10 postgraduate students and 5 employees as a sample

group. The subjects were asked if they had any problems understanding the questionnaire

or have specific comments regarding the questionnaire. The format for responding was

through both open-ended and close-ended questions. The subjects were encouraged to be

very free with their responses, make suggestions for improvement and outline any

difficulties they found.

After each questionnaire was accomplished, every question was asked what he/she meant

in checking various answers. Comments were solicited on the intelligibility of the

questions and what the changes should be done in order to make the questions simpler.

These respondents also gave their comments on understanding the instructions about the

scaling and the time taken to answer the questions. The test found no grave problems and

minor modifications were made to the survey questions based on the verbal opinion

received from the interview.

In addition, the pilot study was conducted to ensure the validity, sequence and relevance

of the questionnaire to this study. The questionnaire was originally written in English and

then translated into Amharic to ensure clarity and interpretation of meaning. The

translated version was included in the Appendix.

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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

3.4 Data Analysis and Interpretation

To determine the underlying dimensions in the set of bank selection criteria, the

importance ratings for the evaluative criteria was factor analyzed. Factor analysis is a

technique which is used to “reduce a large number of variables to some smaller number

by telling the researcher which belongs together and which seems to say the same thing”

(Field, 2005). This technique was believed to be appropriate for this particular analysis

because banking selection determinants have many implications.

As noted by Vaus (2002), such factors are not single measurable entities but are

constructs of a number of other directly observable variables. By factor analysis, these

observable variables can be extracted into factors, each reflecting an underlying property,

which is commonly shared by a certain group of variables (Vaus, 2002). It also helps to

validate that respondents are able to distinguish between the various variables despite the

similarity of the items to be questioned.

The study was finally organized, summarized and analyzed using Statistical Package for

the Social Sciences (SPSS version 15 for windows). SPSS was used for the simple

descriptive data to compute the mean score of factors and to the advanced statistical

procedures of factor analysis. This was done with the help of analytical tools like the

tabular system. Having done such analysis, it was presented using figures, tables and

percentages. Eventually, interpretation of data and discussions of the findings follows

suited.

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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

CHAPTER FOUR

DATA ANALYSIS AND DISCUSSIONS

This chapter basically provides the data analysis and discussion part of the study. The

descriptive and factor analysis are provided in the subsequent sections.

4.1 Descriptive Analysis

This section presents the descriptive analysis of customers‟ responses to each item in

section one (general information of respondents) and section two (their banking behavior)

on the survey questionnaire.

From a total of 220 questionnaires distributed, 208 are returned. The returned

questionnaires are carefully checked, and those with excessive missing data were

discarded, resulting in 201 usable as most items are sufficiently responded. The response

rate is 91.4 percent. Such a response rate is considered sufficient for statistical reliability

and generalizability (Mokhlis, 2009) and most satisfactory especially when compared

with earlier research works on bank selection decisions (Khazeh & Decker, 1992-93 and

Gerrard & Cunningham, 2001). This relatively high response rate was attributed to the

self-administered approach undertaken in distributing questionnaires.

4.1.1 Customers Profile

A summary of findings on customers profile along three variables: age, level of income

(average monthly income of the respondent), and level of education has been presented in

table 1. The reason for using monthly income is that in Ethiopia salaried employees are

contracted on the basis of monthly payment and merchants are asked to put their average
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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

income per month. So, people have a propensity to memorize their salary on a monthly

basis that‟s why convenient to respond during surveys. In terms of customers‟ marital

status, the results of this study showed that, the majority of respondents (about 64

percent) are single, 34 percent are married and the rest are both divorced and widowed.

As revealed in table 1, 155 are males and 46 are females which comprise 77 percent and

23 percent of the customers respectively. This is somewhat may be the fact that in

Ethiopia similar to numerous African nations, financial decision making is the task of the

male parent because they are seen as the chief income earners in the family.

The results for respondents‟ age as depicted on table 1 specifies that the majority of the

vigorous customers (about 53 percent) range below 27 years of age, while 28.4 percent

fall between the age bracket 27 to 35 and 18.9 percent are placed above 36 years. This

might be related to the reality that the age brackets structure the young and dynamic

population of Ethiopia who are in vital services and can therefore hold bank account. It

also shows that the youth populations are superior users of the various banking services

than the aged population.

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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

Table 1: Results of profile data of the respondents

Variable Categories Frequency Percent Valid % Cumulative %

Sex Male 155 77 77 77
Female 46 23 23 100
Age Below 27 years 106 52.7 52.7 52.7
27-35 years 57 28.4 28.4 81.1
36-45 years 32 15.9 15.9 97
Above 45 years 6 3 3 100
Level of Below preparatory 9 4.5 4.5 4.5
education* Preparatory completed 20 10 10 14.5
Diploma 17 8.5 8.5 23
Bachelor degree 118 58.7 58.7 81.7
Master and above 37 18.3 18.3 100
Level of Lower than Br. 2, 000 42 20.9 20.9 20.9
income** Br. 2, 001 to 4, 000 119 59.2 59.2 80.1
Br. 4, 001 to 7, 000 33 16.4 16.4 96.5
More than 7, 000 7 3.5 3.5 100
Source: Computation from field survey data, 2011
Note: *In Ethiopia, completion of preparatory school means accomplishment of 12 years of
schooling starting with class/grade 1.

**1 US Dollar = 16.7952 ETB (as of May 9, 2011 as in all banks of Ethiopia, 2011)

Moreover, the results for the income level of customers show that majority of the

respondents (about 59 percent) have an average monthly income ranging between ETB 2,

001 to ETB8 4, 000. There are 21 percent respondents who fall below this range and 20

percent respondents who fall above this monthly income range.

8
ETB is Ethiopia‟s currency name, birr.

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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

The respondents possess a high level of education. While about 59 percent of the

respondents have a bachelor degree, about 18 percent have attained either a Master or a

PhD degree. About 15 percent of the respondents have education at or below preparatory

school level. A similar study in Bangladesh (Khan et al., 2008) found about 17 percent of

the sample falling below high school category.

The next table shows the proportion of customers‟ occupation based on their age

distribution within each profession.

Table 2: Distribution of respondents‟ Age by occupation

Occupation Number Percentage

Students: Male 74 87%

Female 11 13%

Employees: Male 48 66.7%

Female 24 33.3%

Businessmen9: Male 33 75%

Female 11 25%

Total 201 100%

Source: Computation from field survey data, 2011

As shown above, males account for about 67 percent, 75 percent and 87 percent of the

employee, businessmen and student respondents respectively.

9
*In this study, businessmen and merchants are used interchangeably.
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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

4.1.2 Banking Behavior of Customers

Either in the public or private banks, all respondents are users of banking services. Some

customers, as represented by the survey population, also rely on a mix of financial

services provided by both bank and non-bank institutions. For example, about 3 percent

of the sampled customers that is banked still use non bank services, ranging from

microfinance institution and other traditional saving ways (Edir & Equib).

Fig. 4: Respondents bank affiliation period

Customers Bank Affliation

Less than 2 years 2-4 years 5-7 years More than 7 years

15% 8%

32% 45%

Source: Computation from field survey data, 2011

The customers‟ practice of banking relationship can be interpreted in the following ways.

As demonstrated in figure 4, about 47 percent of the respondents have more than five

years of banking relationship with their main bank. Such a long permanent status of

relationship indicates the capability of customer retention by the banks. This is followed

by 45 percent of the customers with an experience of two to four years. Eight percent of

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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

the customers have a short period relationship (less than two years) with their respective

banks.

The respondents are asked the number of bank(s) at which their banking services are

used. In this regard, about 55 percent and 45 percent are reported as single banking and

multiple banking users respectively. Dealing behavior with various public and private

Ethiopian banks is apparently different. Table 3 revealed that Commercial Bank of

Ethiopia (CBE), Dashen Bank (DB) and Wegagen Bank (WB) are the most three

preferred banks by the respondents in Addis Ababa respectively. About 72 percent and 30

percent of the respondents are performing their banking activities with CBE and DB

respectively. CBE is most preferred probably due to its several branches. Also, about 13

percent and 12 percent of the interviewee respectively use WB and AIB.

Table 3: Rank of banks used by the respondents

List of Banks Frequency Percentage Rank

Commercial Bank of Ethiopia(CBE) 146 72.6 1

Dashen Bank (DB) 60 29.9 2
Wegagen Bank (WB) 26 12.9 3
Awash International Bank (AIB) 25 12.4 4
Nib International Bank (NIB) 15 7.5 5
United Bank (UB) 14 7 6
Bank of Abyssinia (BOA) 14 7 6
Lion International Bank (LIB) 3 1.5 8
Cooperative Bank of Oromia (CBO) 2 1 9
Construction and Business Bank (CBB) 1 0.5 10
Source: Computation from field survey data, 2011
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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

The respondents are asked whether they were in need of other services than the services

already currently rendered by the banks. The results show that about 50 percent of the

respondents need other services than the services offered now.

4.1.3 Customers’ Usage of Banking Services

Table 4 shows the proportion of respondents that are using different bank products or

services as accessible in Addis Ababa. High level of customer awareness and tradition of

saving account and local money transfer services has been observed as the basic types of

customers‟ habit of banking services.

About 71 percent and 42 percent of the sample respondents are beneficiaries of the saving

deposit and money transfer services. Besides, they are aware of and are using the other

services of banks like current account and ATM services.

Table 4: Respondents Usage of Banking Services10

Type of Service Number of Users Percentage
Current account 58 28.9
Saving account 142 70.7
Loan facilities 1 0.5
Money transfer services 87 42.3
ATM services 25 12.4
Source: Computation from field survey data, 2011

As for various credit facilities currently offered with flexible borrowing options in banks,

customers do not have a high habit for any particular one. These are the possible reasons.

First, customers‟ needs for borrowing are different and hence, different services are
10
One respondent may used more than one service offered by the banks
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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

offered to meet such needs. So, no individual borrowing product has sole high usage.

Second, customers may need to have a loan of money from banks in low interest rate, but

banks may not perform this. Third, the majority of the borrowing products are

particularly applicable for corporate customers. The study focuses on individual

customers instead of corporate treasuries. So individuals may not need to borrow money

for their spending purpose.

Services offered by banks such as accepting of diverse types of deposits, granting variety

of credit facilities, international banking services and rendering of local and international

money transfer services are very similar in most banks (excluding ATM services, mobile

banking, internet banking facilities, service charges and implications of interest).

4.1.4 Customers Service Needs

The basic bank services needed by the customers are saving account, current account, and

domestic and international money transfers.

Table 5: Respondents need of additional bank service

Question Response Number (N= 2001) Percent

Do you need any other facility to add Yes 99 49.3
other than the services currently No 102 50.7
offered from your customer bank?
Source: Field survey data, 2011

As portrayed in table 5, customers who need additional service are more or less identical

to those who did not need other services. About 49 percent of the respondents need extra

service from banks. Additional bank services are needed for the customer; including e-
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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

banking facilities (such as, internet banking facilities, telephone banking facilities, ATM

services in all branches, and other credit card banking services), inter-bank networking

and widening their branches in different areas. In addition, provisions of services in

weekends, inter-branch network and special attention for blind customers are also among

the listed needed services.

4.1.5 Customers Satisfaction with Banking Services

Customer satisfaction involves an orientation that says, “take care with all parts of the

process that develops a product or service for the ultimate customer”. In most settings

that customer will be the one who pays to use the service11.

Table 6: Respondents degree of satisfaction with the bank services

Question Response Number (N= 201) Percent

Are you satisfied with the banking Yes 123 61.2

services offered by your main No 78 38.8

customer bank?

Source: Computation from field survey data, 2011

Table 6 presents expressive statistics on the satisfaction of bank customers with bank

services. It has been observed that more than 60 percent of the respondents feel either

very satisfied or just satisfied with the services offered in their main banks. Nevertheless,

38.8 percent of the respondents are not satisfied by the services provided in banks.

Unsatisfied customers were inquired to give their feeling that banks should to take as a

11
See the survey of organizational excellence at the school of social work in University of Texas, 1925,
San Jacinto Blvd.
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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

solution for their dissatisfaction in services offered by banks. They forwarded the

following ideas to be taken by the banks to satisfy their customers. Banks may satisfy

their customers if they: provide quick services to their customers, recruit dedicated

employees in their organization and encompass adequate windows and employees to

offer fast and efficient service.

Other respondents feel that, if banks introduce and apply modern technological working

facilities (e-banking facilities), handle their existing customers properly instead of trying

to attract new ones, and extending their operation hours in the working days till the night

2:00 pm and others need in weekend entire day service. Awarding of high interest rate on

savings, granting of loans on a lowest interest rate and lower service charge are also

suggested as a solution for their satisfaction by the respondents. Finally, most

respondents agreed that, customers may be satisfied successfully if banks shortened their

bureaucracy.

The results on customer satisfaction with bank services have some resemblance with the

results of Khan et al. (2008). They found a very low customer satisfaction with various

financing facilities and an above average mean on satisfaction with „current account‟ and

„savings account‟. However, they reported an above average mean on ATM services.

As money transfer better satisfies customers, this study notes that the ATM services

scored below the average mean of satisfaction.

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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

4.1.6 Intention of Customers to Continue Dealing with their Customer Banks

Customer retention, simply defined, is the ability for a company to keep its existing

customers. It is the measure of a company‟s ability to provide enough value with its

products or services for customers to keep them coming back for more12.

Table 7: Future intention of customers with their customer banks

Question Response Number (N= 201) Percentage

Do have an intention to continue with Yes 138 68.7

your customer bank in the future? No 63 31.3

Source: Field survey data, 2011

Table 7 dictates that the majority (68.7 percent) of the customers do not have a plan to

change their customer banks, thus, determined to continue dealing with their main banks

in the future. Nonetheless, there are some customers who have no intention to persist with

their main customer banks for many reasons. Among the reasons; including delay in

service delivery (specially in CBE), high service charge, unavailability of ATM service,

dissatisfaction with some services (such as loan, blocking etc), unpleasant customer

concern and handling, availability of other better banks, and fear of hesitation in the

private banks.

4.2 Factor Analysis

Factor analysis is a statistical approach that can be used to analyze interrelationships

among a large number of variables and to explain these variables in terms of their

common underlying dimensions (factors). This analysis is a data reduction statistical

12
See the survey of Vindicia 2009, best practices for customer retention in US
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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

technique and designed to simplify the correlation matrix that reveals a small number of

factors which can explain the correlation. Correlation coefficients vary from sample to

sample, much more so in small samples than in large. Hence, the reliability of factor

analysis is as well dependent on sample size (Hair et al., 2005).

The sample size necessary for factor analysis depends on many things. As a general rule,

factor analysis requires a minimum of around 150 participants (Jeromy, 2007) and

communalities after extraction should be above 0.5 (Field, 2005) in order to get a

reliable solution. Such analysis is useful in gaining understanding on the main

dimensions that inspire the observed sets of items (Hair et al., 2005). Varimax-rotated

factor analysis is, therefore, performed on the constituent items representing the different

constructs to validate empirically the theoretical structure of the scale. Factoring ceased

when all eigenvalues of greater than one were obtained and when a set of factors

explained a large percentage of the total variance was achieved (Hair et al., 2005).

Exploratory factor analysis is used in order to identify constructs and investigate

relationships among key interval scaled questions regarding reasons for choosing a bank

services from 201 respondents. This factor analysis summarizes data by grouping

correlated variables and investigates sets of measured variables related to theoretical

constructs.

After the standards indicate that data is suitable for factor analysis, principal components

analysis (PCA) is employed for extracting the data, which allows determining the factor

underlying the relationship between a numbers of variables. The total variable explained

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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

box is suggesting that it extracts one factor accounts for 59.69% of the variance of the

relationship between variables. (See table C2 in the appendix)

Loading on factors can be positive or negative. A negative loading indicates that the

variable has an inverse relationship with other factors. The higher the loading, the more

important is the factor. An accepted method of interpretation of factor loadings is to

regard as significant any variable with a loading of 0.4 or greater as associated with the

appropriate factor (Hair et al. 2005). Jeromy (2007) suggested that any value with loading

of 0.5 and increased loading becoming more vital while value with less than this is very

low in determining the factor. (See table C3 in the appendix)

Rotation is necessary when extraction technique suggest there are two or more factors.

The rotation of factors is designed to give an idea of how the factors initially extracted

differ from each other and to provide a clear picture of which item load on which factor.

4.3 Factor Formulation

All analysis is conducted using SPSS statistical software version 15 for Windows. As an

introduction step, evaluative criteria items were factor analyzed to reduce the variables to

a manageable number of components. An accepted method of interpretation of factor

loadings is to regard as significant any variable with a loading of 0.4 or greater as

associated with the appropriate factor (Hair et al., 1998).

Factor analysis deemed appropriate for the items because the Keiser-Meyer-Olkin

(KMO) measure of sampling adequacy test index equaled .802 in which Keiser‟s measure

of sample adequacy above .5 is good enough to perform a factor analysis. Moreover, the
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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

Bartlett‟s test gives a significance level of less than 0.0001 confirming the

appropriateness of the factor model. (See table C1 in the appendix)

4.4 Explanation of Bank Selection Factors

Using the Eigenvalue greater than one rule, seven factors are identified. All

characteristics with factor loadings of 0.40 and above are retained. In addition, means

were computed for all attributes retained within each factor to identify the relative

importance of such attributes to the customers in their bank selection process. In terms of

overall factor means, the sixth factor is the most important in terms of bank selection and

the first factor is (slightly) the least important.

The first factor in Table 8 delineates a selection factor based on low interest rate on loans,

high interest rate on savings, attractive interest within short period of time and the e-

banking facilities. This factor accounts for 15.70 percent of the total variance. This factor

may be labeled a financial benefits/ technology factor. Here, it can be noticed that low

service charge (mean = 2.0945) and attractive interest within short period of time (mean

= 2.0896) have the two highest means in this factor, indicating the vast importance of

service charges and interest rate in determining bank selection for customers.

The second factor identifies a dimension based good customer services, speedy services,

reception at the bank and variety services offered. This factor accounts for 10.067

percent of the total variance. This factor may be categorized service provision factor.

Within this factor, the most important attributes are speedy services (mean = 3.2687) and

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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

reception at the bank (mean = 3.2189), while the least important item is variety of service

offered (mean = 2.7463).

The third factor, containing items related to my employer uses the same bank and

services offered by banks including extended operation hours and availability ATM

services, has been named employers‟ influence. Attributes falling within this factor

accounts 8.197 percent of the total variance. Within this factor, extended operation hours

is the most important determinant item (mean = 2.9154) in customers‟ bank selection

process. On the other hand, the least important item in this respect is my employer uses

the same bank (mean = 2.3184).

The fourth factor has been labeled as “Reputation factor”. Items load positively on this

factor are establishment period of the bank (being established be for others), bank‟s

reputation and being a government owned bank. Among the items in this factor,

reputation is the highest ranked (mean = 2.4279). An implication of this is that customers

consider reputation to be an important measurement in their bank selection process.

The fifth factor comprises items related to promotion including advertising services via

mass-media, availability of several branches and parking facilities. Hence, these items are

considered as promotion strategy. Availability of several branches is the most significant

attribute within this factor whereas accessibility of parking space nearby is the least

important.

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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

The sixth factor encompasses proximity to home and/ or workplace and security

arrangement in which proximity is the most important item with a mean score of 3.6567.

This factor may be considered as convenience.

Finally, the seventh factor includes items associated to bank image like pleasant bank

atmosphere and external appearance of the bank. Pleasant bank atmosphere is the most

important item (3.1592). Here, in the seventh component most of the variables scored the

lowest loading (i.e below .4) except that of the pleasant bank environment (see table C3

in the appendix).

However, it is worth mentioning that among the seven factors reported above, the sixth

and the second two factors are characterized by much higher mean importance ratings

than the other characteristics, emphasizing the importance of convenience and service

provision for bank selection decisions by this market segment.

Recommendation from family and/ or friends is not included in any one of the

components (factors) because of lowest score in its loading factor. This implies that

customers did not choose banks and banking services depending on suggestion of other

peoples rather they select based on other criteria. On the contrary, this factor was the first

most important factor for commercial bank selection in the study conducted by Anderson

et al. (1976) and Kaynak (1991), for the customers in America and Turkey, and ranked as

second most important factor in the study of Farooq et al. (2010) by Islamic customers in

Afghanistan. Finally, the criteria listed in table 9 include only those which had factor

loadings of 0.5 and above. Results are summarized in table 8 based on their factor

loading scored.
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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

Table 8: Results of factor analysis

Factors and Items Factor Eigen % of
loadings values13 Variance14
Factor 1: Financial benefits/ technology
Low interest rate on loans .787 5.667 15.700
High interest rate on savings .784
Attractive interest within short period of time .635
Phone banking facility .613
Internet banking facility .593
Low service charge .561
Factor 2: Service provision
Good customer services .831 2.163 10.067
Bank has speedy services .745
Reception at the bank .633
Variety of services are offered .417
Factor 3: Employer’s influence
My employer used the same bank .651 1.624 8.197
Extended operation hours .643
Availability of ATM services .591
Factor 4: Reputation
Establishment time of the bank (oldest) .695 1.470 7.994
Bank‟s reputation .633
Being a government owned bank .585
Factor 5: Promotion strategy
Advertising via mass media .698 1.221 6.697
Availability of several branches .546
Availability of parking space nearby .511
Factor 6: Convenience/ security
Proximity to home and/ or workplace .792 1.167 5.791
Security arrangement of the bank .411
Factor 7: Bank image
Pleasant bank environment .778 1.014 5.245
External appearance of the bank .528
Source: Computations from the field survey data, 2011

13
The average variance explained in the items by a component multiplied by the number of components.
An eigenvalue of 1 is equivalent to the variance of 1 item.
14
These represent the percentage of total variance in the items explained by a component. This is
equivalent to the eigenvalue divided by the number of items.
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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

The analysis from the above table yielded a seven principal components solution, which

together explained more than half of the variance observed in the variables (59.69

percent), that satisfies the percentage of variance criterion for social science research.

(See table C2, total variance explained, in the appendix)

4.5 Reliability Test

Reliability refers to the property of a measurement instrument that causes it to give

similar results for similar inputs. Mathematically, reliability is defined as the proportion

of the variability in the responses to the survey that is the result of differences in the

respondents. Thus, to evaluate the internal consistency of each factor group obtained, the

factors were subjected to reliability test. The assumption behind this approach is that the

items of a measure work collectively as a set and should be competent of independently

measuring the same construct. The items should be reliable in what they indicate about

the concept being measured. The Cronbach alpha was used to measure internal reliability

by unit weighting items with salient loadings in a factor where Cronbach‟s alpha

coefficient at 0.5 or higher was considered acceptable (Mokhlis et al., 2008, 2009). These

factors produced alpha coefficients of .833 indicating high internal consistencies and

reliability. (See table C4 in the appendix)

4.6 Ranking Importance of Bank Selection Factors

In order to analyze differences in the importance of bank selection criteria employed, a

ranking table was produced showing the mean score of each factor. Table 9 presents

findings with respect to relative importance of bank selection criteria factors. The top two

factors that found in the listing were “convenience/ security” (mean= 3.2513) and
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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

“service provision” (mean= 3.1008). The significance of the convenience factor has been

seen in previous studies which have used students and other customers as their sample

(Schram, 1991; Holstius et al., 1995; Owusu- Frimpong, 1999; Lee and Marlowe, 2003;

Dusuki, 2007 and Katircioglu et al., 2011). On the contrary, in the study conducted by

Mokhlis et al. (2008), this factor was ranked as fifth factor for the selection of banking

services by the customers. Whereas, Almossawi (2001) ranked convenience as second

most important factor for bank selection decision in Bahrain customers.

Similar to this study, in Gerrard and Cunningham‟s (2001) study, the service provision

factor was ranked third most influential out of seven factors. Whereas, in the study of

Mokhlis et al. (2008) this factor was ranked as the fourth most important criterion out of

nine factors. The “Employers‟ influence” (mean= 2.5937) factor was rated as the third

most important decisive factor influencing customers when deciding which bank to

patronize. This factor was ranked least (seventh and ninth) important factor in the studies

conducted by Gerrard and Cunningham‟s (2001) and Mokhlis (2009) respectively.

The “promotion strategy” factor (mean= 2.2604) which involve in advertising the various

services offered in banks and availability of several branches, came next in terms of

relative importance. This is consistent with the previous findings in the literature (Gerrard

and Cunningham, 2001; Mokhlis et al., 2008); Mokhlis, 2009; Katircioglu, 2011). This

factor was ranked as the second most important criterion for bank selection decision by

the Nigerian and Malaysian customers respectively (Maiyaki, 2011; Abduh, 2010). The

“reputation” factor (mean= 2.1841) is ranked as least important by the customers.

Likewise, in the previous studies Mokhlis (2009) and Gerrard and Cunningham (2001),
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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

this finding was ranked eighth out of the nine factors and sixth of seven factors

correspondingly.

Table 9: Ranking importance of bank selection criteria factors

Factors Mean Rank
1 Convenience/ security 3.2513 1
2 Service provision 3.1008 2
3 Employers’ influence 2.5937 3
4 Bank image 2.5538 4
5 Promotion strategy 2.2604 5
6 Reputation 2.1841 6
7 Financial benefits/ technology 1.9544 7
Based on a four-point Likert scale 4 = very important; 1 = not important

As opposed to the study by Almossawi (2001) in which technology related facilities and

financial benefits ranked as the top most important selecting criteria for banks, in this

study, these factors (mean= 1.9544) was found to be the last and least important criteria

in selection of banks by the customers. The insignificance of the factors has been seen in

previous studies (Anderson et al., 1976; Boyd, 1994; Devlin, 2004). However, in the

study by Mokhlis (2009) financial befits was ranked third important factor.

4.7 Gender Based Description of Factors

While the survey data is analyzed based on gender separately to male and female

customers, it provides different components than the result found in the above analysis

for the total sample. The analysis for male customers produced seven factor groups

whereas female customers‟ analysis produced eight factor groups. (See table C5 and C6

in the appendix)
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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

Factor 1: The first component for both male and female customers was items related to

financial benefits/ technology in which well-organized and ranked based on their factor

loading. Items with high loading for instance; high interest rate on savings (.855 for

females and .649 for males), low interest rate on loans (.793 for females and .658 for

males), attractive interest rate within short period of time (.828 for females and .429 for

males), internet banking facilities (.681 for males and .630 for female respondents) and

phone banking facilities (.737 for male respondents and .649 for females) are grouped

under this common denominator.

Factor 2: The second component was related to service provision for male customers

(good customers‟ services, speedy services, and variety services offered) and items

related to bank image ( pleasant bank atmosphere and availability parking facilities) were

the second factor for female customers.

Factor 3: The third component for male customers was items related to the reputation and

others‟ influence while service provision was the third component for female customers.

Employer‟s influence/additional services were forth component for both gender

customers. Convenience/security was the fifth component for male customers and sixth

component for female customers. Attractiveness is the sixth component for males and

seventh factor for females while branches location was the fifth for the female customers.

Finally, low service charge was the eighth factor for female customers. (See table C7 and

C8 in the appendix)

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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

4.8 Gender Based Ranking of Importance

Table 10 shows the choice criteria for both male and female customers ranked in order of

mean importance of each factor. Optical examination of the table reveals that

„convenience‟ is most important in the selection decision of both male and female

respondents, being in the top criteria in each case. Male respondents ranked „bank image‟

as a second most important factor but ranked third by female respondents. On the other

hand, „service provision‟ is ranked second by female respondents while male respondents

ranked this factor as third. Female respondents ranked „secure feeling‟ as their fourth

most significant factor in selecting banks and banking services. Both male and female

respondents ranked „reputation‟ the same as third least important factor. The two least

important factors in selecting a bank for both male and female respondents are

attractiveness (ranked sixth by males; seventh by females) and financial benefits (ranked

seventh by males; eighth by females). The subsequent table explains the analysis results

of the importance level of bank selection criteria, beside with the mean scores for the

sample distribution by gender.

There are some similarities between the findings of this study and the findings of earlier

studies. The selection of „convenience‟ as most important factors in selection decision by

male and female respondents is acknowledged in the literature (Holstius and Kaynak,

1995; Owusu-Frimpong, 1999; Lee and Marlowe, 2003). On the contrary, Ta and Har

(2000), Almossawi (2001) and Rao (2010) ranked this factor along with the least

important factors for bank selection decision. The importance of service provision as

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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

second criterion by female respondents has been evidenced in the study conducted by

Gerrard and Cunningham (2001) in Singapore.

Table 10: Ranking importance of bank selection factors by gender

Selection Factors Male Female

Mean Rank Mean Rank
Convenience 3.1871 1 3.7391 1
Bank image 3.1742 2 2.6304 3
Service provision 3.0823 3 3.1630 2
Employers’ influence 2.6301 4 2.4783 5
Reputation/ promotion strategy 2.0215 5 2.1232 6
Attractiveness 1.8860 6 1.4891 8
Financial benefits/ technology 1.8771 7 1.8406 7
Secure feelings 2.6191 4
Based on four-point Likert scale 4 = very important; 1 = not important at all

Likewise, the fourth finding by female customers in this study was ranked as first most

important in previous studies (Gerrard & Cunningham, 2001; Mokhlis et al., 2008;

Mokhlis, 2009). In particular, „secure feeling‟ reflects customers‟ desire of banking with

a stable bank and assurance of secrecy when making a transaction. Both male and female

respondents also tend to put more emphasis on employer‟s influence which enforced by

the organization to patronize on banks where their salary is transferred. The „secure

feelings‟ factor, which ranked fourth by female respondents, is not considered so highly

by their male counterparts.

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4. 9 Ranking of Importance by Occupation and their Explanation

Using the Eigenvalue greater than one rule, seven factors by the employees and students

and eight factors by the businessmen are identified. All characteristics with factor

loadings of 0.40 and above were retained. In addition, means are computed for all

attributes retained within each factor to identify the relative importance of such attributes

to the customers in their bank selection process.

Items falling within factor one mainly include questions like; high interest rate on saving,

low internet rate on loans, attractive interest within short period of time and low service

charge for both employee and student respondents. This factor may be reduced to the

common denominator “financial benefits” while “technology” related questions such as

internet and phone banking facilities were grouped under factor one for businessman

respondents.

Three items falling within the second factor for employees and businessmen respondents,

relate to, reputation of the bank (reputation, being a government owned and the

establishment period of the bank). This factor may be identified as “Reputation”.

Whereas for students it incorporates items correlated to provision of service (speedy

services, reception at the bank, good customer service and variety services offered).

Therefore, this factor may be categorized as “service provision”.

Items in the third factor were different for all occupation respondents. Availability of

ATM services, internet and phone banking facilities are grouped as “technology” factor

for employees whereas items related to “convenience” factor for those student

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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

respondents and for the businessman respondents; high interest rate on saving, low

interest on loans and attractive interest within short period of time are labelled under the

“financial benefit” factor.

Factor four includes convenience, technology and bank image factors for employee,

student and businessman respondents respectively. Service provision and promotion

strategy was integrated under factor five and six for both employees and businessmen

respectively while promotion strategy and bank image was for student respondents. Items

related to bank image, reputation and secure feelings are labelled as the seventh factor for

employee, student and businessman respondents respectively. The eighth factor for

businessman respondents was convenience.

The following table clarifies the investigation results of the significance rank of bank

selection criteria, with the mean scores for the sample distribution by occupation.

Table 11: Ranking importance of bank selection factors among different occupation
Selection Factors Employees Students Businessmen
Mean Rank Mean Rank Mean Rank
Convenience 3.3472 1 2.4902 3 3.6705 1
Service provision 3.1759 2 3.0376 2 2.2557 4
Bank’s image 3.0833 3 3.1059 1 3.3409 2
Technology 2.3889 4 2.0628 5 1.3561 8
Reputation 2.3380 5 2.0118 7 1.9470 5
Promotion strategy 2.1759 6 2.2392 4 1.8636 6
Financial benefits 2.0972 7 2.0235 6 1.4925 7
Secure feelings 2.9546 3
Based on four-point Likert scale 4 = very important; 1 = not important at all

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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

The most three important factor considered by employees and student customers when

selecting a bank are “convenience”, “service provision” and “bank image”. However,

convenience factor is the considered as a first choice by employees‟ hence third most

important factor by students and bank image was the most essential factor by students as

ranked third by employees. The first two findings of this study are consistent with

previous studies (Haron et al., 1994).

On the other hand, businessmen customers considered “bank image” as the second most

important factor, while ranking „secure feeling‟ as the third most important factor.

“Bank‟s atmosphere” is ranked third by employee customers while student customers

ranked convenience as their third choice for selecting baking services. This difference

might have resulted from the general lack of trust for banks in Ethiopia. Businessman

customers tend to rely on secure feelings because they might feel banks are the best

alternatives to save their money in a secured manner.

The findings of technology as a least important factor in this study is consistent with

findings of previous study Cicic et al. (2004) in which the technology related facilities

considered as the least important factors when his study compared to the studies in

developed countries. Financial benefit, reputation and promotion strategy related items

are also considered as the least important criteria by the customers to patronize bank

services.

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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

It is interesting that the determinants of the bank selection related to the reputation are not

that highly ranked as expected. The “convenience” is the only determinant that is highly

ranked by most of the respondents that also leads to the conclusion that the respondents

consider the proximity to their home and/ or workplace criterion for selecting banks and

banking services. Based on the above results, we are able to attain a conclusion that the

more advanced technologies are so far to acquire embrace in Ethiopia to facilitate

reduction of the visits to the banks or reduction of personal contacts with the employees

of the bank.

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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

Chapter Five

Concussion and Recommendations

5.1 Conclusion

Today, the existing stiff competition among banks necessitates a detailed understanding

of the influential factors behind the bank selection decision in Addis Ababa city.

Therefore, the objective of this research is to investigate the determinants of bank

selection decision based on their importance and identify the additional services needed

by customers other than the currently offered services. To trace such objectives, we used

a convenience sampling procedure comprising 201 observations. The sample size

comprises 85 students, 72 employees and 44 merchants in the city.

Descriptive analysis revealed that most respondents fall in the age group of below 27

years. Concerning their education, about 77 percent of the sample respondents have

attained at least a first degree. In talking about bank selection by customers, the level of

income of the respondents matters more. In this regard, the results show that about 21 and

59 percent of the respondents received a monthly income of less than ETB 2,000 and 2,

000 to 4,000. This is followed by a very few number of individuals – 33 and 7

respectively – that has an average income of ETB 4,000 to 7,000 and above 7,000.

An important issue in dealing with bank selection is to see the affiliation of respondents

with the respective bank(s). Results show that about 8 percent of the customers have a

less than two year experience of getting service with a particular bank. The majority of

them – about 45 percent- have indicated a relationship that lasts for 2 to 4 years.
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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

Furthermore, 32 percent and 15 percent of the beneficiaries reports as having a 5 to 7 and

more than 7 years affiliation range respectively.

We observe that the Commercial Bank of Ethiopia, Dashen Bank, Wegagen Bank and

Awash International Bank are the top most preferred banks by customers. Users

frequently choose the two former banks perhaps because of their wider operation and

quality of service provision respectively.

Looking at the specific banking services, customers are widely noticed using a saving

account, money transfer services and current account. The respective numbers of

beneficiaries are about 71 percent, 42 percent and 29 percent respectively. Striking,

however, is the finding that customers are not using the loan services available across

banks. Apart from the current services, clients highlighted some further improvements in

the banking industry. Among others, introduction of internet banking, phone banking,

and access to ATM over all branches and inter-branch networking were identified as a

key future requirements that banks should fulfill.

The factor analysis results revealed that convenience, service provision and employers‟

influence as fundamental determinants of bank selection, among others. Finally,

differences in bank choice are examined from the gender perspective. The finding

demonstrates that while there exists no variation across males and females due to

convenience, we see that males prefer bank image to service provision. The reverse holds

true for female customers in Addis Ababa city.

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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

5.2 Recommendations

Based on the findings of the study, we forward the following recommendations.

 Customers place more emphasis on factors like convenience, service provision,

employers‟ influence and bank image. Therefore, such factors should be
considered seriously by the commercial banks in designing their marketing
strategies by widening their branches and providing good customers services to
customers.

 Customers suggest some additional improvements in the banking industry other

than the services currently offered. Consequently, focusing on well-integrated

application of technology and staff through operations that respond to customer

needs encourage customers to use a whole range of banking services rather than

just a few. It also helps to build loyalty by creating deeper and fuller customer

relationships.

 Since the age category below 27 has the most usage and more representation in

the sample, banks should target its marketing mix toward this category. Such a

technique will ensure attraction of job-market entering people towards bank

service and also retention of the people who are likely to remain long-term loyal

customers. In addition, banks should try to find out some ways to better

familiarize their customers with the borrowing products for customers.

 Though about 50 percent of the customers report as satisfied, banks should keep

their customers more satisfied with the services provided. Based on the results of

this study, customer satisfaction and loyalty would be increased by focusing on

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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

different, but related, factors: bank service processes, including well experienced

bank personnel, inter-bank networking and service facilities required conditions

for receiving the needed services, internet banking facilities and speed facilities.

 Finally, bank management should be aware that some of the bank selection

determinants differ from one segment to another in the business firm market.

These results would enable bank managers to identify the important bank

attributes that affect bank selection decisions made by each segment in the

business market in Ethiopia.

 Since the results of this study are based on customers‟ perceptions only,

investigating the correspondence between consumers‟ and service providers‟

perceptions could be an important research area among interested future

researchers. This will help the industry to better understand whether both

customers and banks have the same perceptions regarding issues relevant to bank

selection criteria. In addition, future researches should explore the bank image

dimensions which customers perceived as applicable to their selection decision,

giving emphasis to the choice between private and public banks in patronage

situation.

Page | 67
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 APPENDIXES

Appendix A: Survey Questionnaire (Amharic Version)

የጥናት መጠይቅ
የተከበራችሁ የጥናቱ ተሳታፊዎች:-
ይህ መጠይቅ የተዘጋጀው በአዲስ አባባ ከተማ ያሇውን የደንበኞች የባንክ አመራረጥ ሁኔታ
ምን እንደሚመስሌ ሇማጥናት ከአዲስ አባባ ዩኒቨርሲቲ የአካዉንቲንግና ፋይናንስ ትምህርት
ክፍሌ የማስተርስ ዲግሪ መመረቅያ ፅሁፍ ሇማዘጋጀት ነው:: የጥናቱ ዋና ዓሊማ ደግሞ
በባንኮች ሊይ ያሇውን የባንክ አገሌግልት አሰጣጥ ስርዓት በማጥናት ክፍተቱን ጠቁመን
የመፍተሔ አቅጣጫን ሇማመሌከት ነው:: የምትሰጡን ሐሳብ ከዚህ የዘሇሇ ሇላሊ ዓሊማ
እነደማንጠቀምበትና ሚስጥሩም የተጠበቀ መሆኑን እየገሇፅን ጥያቄዎቹ ከአምስት ደቂቃ
በሊይ እንደማይፇጁም ሌናሳውቅዎት እንወዳሇን:: ሇምታደርጉሌን ትብብር ሁለ በቅድምያ
እናመሰግናሇን::
ማስታወሻ: እባክዎን መሌስዎን እንደየአስፇሊጊነቱ በተሰጠዉ ክብ ቦታ ሊይ የ ‘√’ ምሌክት
ያስቀምጡ::

ክፍሌ አንድ: የተሳታፊዎች አጠቃሊይ ሁኔታ

1. ፆታ: ወንድ ሴት
2. ዕድሜ: ከ27 ዓመት በታች 27-35 ዓመት ከ36-45 ዓመት
ከ45 ዓመት በሊይ
3. የትዳር ሁኔታ: ያሊገባ/ች ያገባ/ች የፇታ/ች የሞተችበት/ባት
4.የሥራ ሁኔታ: ነጋዴ ተማሪ ሰራተኛ
5. የትምህርት ደረጃ: የአንደኛ ደረጃ ትምህርት ጨርሻሇሁ
ሁሇተኛ ደረጃ ትምህርት ጨርሻሇሁ ዲፕልማ
ባችሇር (የመጀመሪያ) ዲግሪ ማስተርስ ና ከዚያ በሊይ
ላሊ ይግሇፁሌን _________________________________________
6. እባክዎትን የወር ገቢዎን በየትኛዉ ምድብ እንደሚገኝ ቢያሳዉቁን (አማካይ ገቢም
ቢሆን) ከብር 2,000 በታች ከብር 2,000-4,000
ከብር 4,000-7,000 ከብር 7,000 በሊይ
ክፍሌ ሁሇት: የባንክ አጠቃቀም ሁኔታ
7. የባንክ አገሌግልቶችን ይጠቀማለ? አዎ አሌጠቀምም
8. ሇጥያቄ ቁጥር 7 መሌስዎ “አሌጠቀምም” ከሆነ ምክንያትዎ ምንድ ነዉ?
በቂ የሆነ ገንዘብ የሇኝም ጥቅሙ አሌታየኝም
ላሊ አማራጭ ስሇምጠቀም (ሇምሳላ ጥቃቅንና አነስተኛ ተቋማት¸ ዕቁብ)
በጭራሽ ሇመጠቀም አሌፇሌግም ካሌፇሇጉ ሇምን እንደማይፇሌጉ
ቢያብራሩሌን ____________________________________________.
9. ሇጥያቄ ቁጥር 7 መሌስዎ “አዎ” ከሆነ በየትኛዉ ባንክ ይገሇገሊለ (ከአንድ ባንክ በሊይ
የሚገሇገለ ከሆነ የባንኮቹን ስም ቢዘረዝሩሌን)
____________________________________________________________.
10. ከሊይ ከመረጡት/ጧቸዉ ባንክ/ኮች ያሇዎትን የደንበኝነት ጊዜ ሇስንት ዓመት ያህሌ ነዉ?
(ሇእያንዳንዱ ባንክ ይግሇፁሌን):: ________________________________
11. ከሚገሇገለበት/ቧቸዉ ባንክ/ኮች ውስጥ የትኛውን የባንክ አገሌግልት ይጠቀማለ?
ተንቀሳቃሽ ሒሳብ የቁጠባ ሒሳብ የብድር አገሌግልት
ሇመሊክያ/መቀበያ አገሌግልት ሇ “ATM” አገሌግልት
ላሊ (ይግሇፅለን) ___________________________________________.
12. የሚገሇገለበት ባንክ/ኮች ከሚሰጠዉ/ጧቸዉ አገሌግልቶች በተጨማሪ መሰጠት አሇበት
የሚለትን አገሌግልት አሇ? አዎ የሇም
13. ሇጥያቄ ቁጥር 12 መሌስዎ “አዎ” ከሆነ መጨመር አሇበት የምትለትን ምንድ ነው?
___________________________________________________________.
14. ባንኮች በሚሰጧቸዉ አገሌግልቶች ይረካለ? አዎ አሌረካም
15. ሇጥያቄ ቁጥር 14 መሌስዎ “አሌረካም” ከሆነ ምን ቢያደርጉ ደንበኞቻቸውን ሉያረኩ
ይችሊለ ብሇው ያስባለ?
________________________________________________________
________________________________________________________.
ክፍሌ ሦስት: የባንክ ምርጫ መመዘኛዎች
16. የሚገሇገለበት ባንክ/ኮች ሲመርጡ የሚጠቀሙባቸዉ መመዘኛዎች ከሚከተለት አማራጮች
ውስጥ ሇርስዎ ባሊቸዉ ጠቀሜታ መሰረት ከ“4=በጣም ጠቃሚ” እስከ “1=ምንም
አይጠቅምም” እያለ አንድ ቁጥር ብቻ በማክበብ መሌስዎን ያስቀምጡሌን::

4=በጣም ጠቃሚ 3=ጠቃሚ 2=አነስተኛ ጥቅም 1=ምንም አይጠቅምም

መመዘኛዎች የጠቀሜታቸዉ ደረጃ
1 ወደ ቤቴ (የሥራ ቦታዬ) ቅርበት ስሊሇው 4 3 2 1
2 የባንኩ የስራ ቦታ አመቺ በመሆኑ 4 3 2 1
3 ብዙ ቅርንጫፍ ስሊሇው 4 3 2 1
4 ጥሩ የሆነ መስተንግዶ ስሊሇው 4 3 2 1
5 የተሇያዩ የአገሌግልት ዓይነቶች ስሇሚሰጥ 4 3 2 1
6 ተጨማሪ የአገሌግልት ሰዓት ስሊሇው (ቅዳሜ¸ ማታ) 4 3 2 1
7 የጥበቃ/ደህንነት አደረጃጀቱ ጥሩ ስሇሆነ 4 3 2 1
8 የ “ATM” አገሌግልት ስሇሚሰጥ 4 3 2 1
9 የኢንተርኔት ባንክ አገሌግልት ስሇሚሰጥ 4 3 2 1
10 የመኪና ማቆምያ ቦታ ስሊሇዉ 4 3 2 1
11 አገሌግልቶቹን በመገናኛ ብዙኋን ስሇሚያስተዋውቅ 4 3 2 1
12 የስሌክ ባንክ አገሌግልት ስሇሚሰጥ 4 3 2 1
13 የቤተሰቦቼ ና የጓደኞቼ ምክር ሰምቼ 4 3 2 1
14 ዝቅተኛ የአገሌግልት ዋጋ ስሇሚያስከፍሌ (ሇምሳላ ሇመሊክያ 4 3 2 1
የሚያስከፍሇውን)
15 ብድር በዝቅተኛ ወሇድ ሒሳብ ስሇሚሰጥ 4 3 2 1
16 በቁጠባ ሒሳብ ሊይ ከፍተኛ ወሇድ ስሇሚከፍሌ 4 3 2 1
17 ጥሩ የሆነ የደንበኞች አገሌግልት ስሇሚሰጥ 4 3 2 1
18 የባንኩ ዝና/ሥመጥር መሆን 4 3 2 1
19 ፇጣን የሆነ አገሌግልት ስሇሚሰጥ 4 3 2 1
20 የመጀመሪያ ባንክ ስሇሆነ (ላሊ ባንክ ስሊሌነበረ) 4 3 2 1
21 በተቀማጭ ገንዘብ ሊይ ባአጭር ጊዜ ዉስጥ ወሇድ ማሰብ 4 3 2 1
ስሇሚጀምር
22 የምሰራበት መስሪያ ቤት ስሇሚጠቀምበት 4 3 2 1
23 መንግስታዊ ባንክ በመሆኑ 4 3 2 1
24 የባንኩ ውጫዊ/ውስጣዊ ቅርፅ/ መሌክ የሚያምር በመሆኑ 4 3 2 1

17. የሚገሇገለበትን ባንክ ሇመቀየር ሐሳብ አሇዎት? አዎ በፍፁም

18. ሇጥያቄ ቁጥር 17 መሌስዎ “አዎ” ከሆነ ሇምን ሇመደቀየር እንዳሰቡ ቢያብራሩሌን?
____________________________________________________________
___________________________________________________________.
19. ጥናቱን በተመሇከተ ማንኛውም ዓይነት አስተያየት ካሇዎት?
____________________________________________________________
____________________________________________________________.

እናመስግናሇን!!!

Appendix B: Survey Questionnaire (English Version)

Appendix
Survey Questionnaire
Dear Respondents,

This questionnaire is designed to gather information about the major factors that
determine customers’ bank selection in Addis Ababa City. All responses will be used
to conduct a study for the partial fulfilment of Masters Thesis in Accounting and
Finance from Addis Ababa University and, then, as an input for banks to improve
their service delivery. Your anonymity/ secrecy will be strictly maintained as we do
not ask for your name here and will not be used for any other purpose. Besides, this
survey should only take about 5 minutes of your time. We are grateful for your
cooperation in advance!

N.B Please put a „√‟ mark to all your responses in the circle provided beside to each
question (if necessary).

Part I: Personal Information

1. Gender of respondent: Male Female
2. Age of respondent: Below 27 years 27-35 Years 36-45Years
>45 years
3. Marital Status: Single Married Divorced Widowed
4. Occupation: Student Businessman Employee
5. Level of education: Primary completed Secondary completed
Diploma Bachelor Degree Master Degree or above
other, specifies _________________________________________________.
6. Could you indicate in which category your monthly income belongs?
Less than Br. 2, 000 Br. 4, 001- 7, 000
Br. 2, 001-4, 000 over Br. 7, 000
Part II: Banking Behavior of Respondents
7. Do you use bank services? Yes No
8. If your response to Q7 is no, why? I don’t have enough money
Lack of awareness
I use other alternatives (like Micro Finance Institutions, Idir, and Equb)
I don’t need it please specify your reason _________________________.
9. If your response to Q7 is yes, which bank/s do you utilize for your banking
services? (List them if you concurrently use many banks).
________________________________________________________________.

10. What is the length of your relationship with your main bank/s in terms of years?
(Please indicate for all banks). ________________ ____________ _________.

11. What type of service/s do you use in that bank? (Multiple answers possible).
Current account Saving account Loan/credit Transfer
ATM service other, please specify ______________
12. Do you need any other facility to add other than the services currently rendered
from your customer bank? Yes No
13. If your response for Q12 is yes, what type of service do you need to be added?
________________________________________________________________.
14. Are you satisfied with banking services you are rendered? Yes No
15. If your response for Q14 is No, what could be done to solve those problems?
__________________________________________________________________
________________________________________________________________.
Part III: Bank Selection Criteria
16. Indicate in the following table the rate of importance of the criteria you did
consider by choosing a specific bank. Please circle one number for each statement
by using the following scale ranging from “4=most important” to “1=not
important at all” based on their degree of importance.

4= most important 3=important 2=less important 1=not important at all

Factors Level of importance

1 The closeness/nearness to my home/work 4 3 2 1

2 The convenient location of the bank 4 3 2 1

3 It have several branches 4 3 2 1

4 The reception at the bank 4 3 2 1

5 It offered variety of services to customers 4 3 2 1

6 Its extended operation hours (i.e Saturday, evening etc ) 4 3 2 1

7 The security arrangement at the bank 4 3 2 1

8 The facilities of ATM services 4 3 2 1

9 It provide internet/online banking facility 4 3 2 1

10 It give parking facilities 4 3 2 1

11 It advertises it’s services in mass medias 4 3 2 1

12 It offer phone banking facility 4 3 2 1

13 Recommendation from my family and/or my friends 4 3 2 1

14 Its service charge is low in contrast to others 4 3 2 1

15 Its interest rate on loans is low in contrast to others 4 3 2 1

16 Its interest rate on savings is high in contrast to others 4 3 2 1

17 It provide good service to customers 4 3 2 1

18 By its reputation/brand name 4 3 2 1

19 Its service provision is fast & efficient 4 3 2 1

20 It was established early ( it is the oldest bank) 4 3 2 1

21 It provides interest earning in a relatively short period of time. 4 3 2 1

22 My employer uses the same bank. 4 3 2 1

23 Being a governmental bank 4 3 2 1

24 The exterior and/or interior appearance of bank 4 3 2 1

17. Do you have an intention to change your customer bank? Yes No

18. If your answer to Q17 is yes, please elaborate why?
______________________________________________________________.
19. If you ever changed your customer bank, has the current bank solved your
aforementioned problems? Yes No
20. Comments (if you have comments regarding this survey, please fill in)
_________________________________________________________________
_____________________________________________________________.
 Appendix C: Statistical Results of Factor Analysis

Table C1: KMO and Bartlett's Test

Kaiser-Meyer-Olkin Measure of Sampling Adequacy. .802
Bartlett's Test of Sphericity Approx. Chi-Square 1372.442
Df 276
Sig. .000
Table C2: Total Variance Explained
Component

Initial Eigenvalues Extraction Sums of Squared Rotation Sums of Squared

Loadings Loadings
Total % of Cumula Total % of Cumula Total % of Cumula
Variance tive % Variance tive % Variance tive %
1 5.667 23.612 23.612 5.667 23.612 23.612 3.768 15.700 15.700
2 2.163 9.011 32.624 2.163 9.011 32.624 2.416 10.067 25.767
3 1.624 6.766 39.390 1.624 6.766 39.390 1.967 8.197 33.964
4 1.470 6.124 45.514 1.470 6.124 45.514 1.919 7.994 41.958
5 1.221 5.088 50.602 1.221 5.088 50.602 1.607 6.697 48.654
6 1.167 4.864 55.466 1.167 4.864 55.466 1.390 5.791 54.445
7 1.014 4.224 59.690 1.014 4.224 59.690 1.259 5.245 59.690
8 .926 3.859 63.549
9 .911 3.795 67.344
10 .846 3.524 70.868
11 .784 3.266 74.134
12 .734 3.059 77.194
13 .673 2.806 80.000
14 .654 2.726 82.726
15 .579 2.411 85.136
16 .556 2.317 87.453
17 .509 2.119 89.573
18 .486 2.024 91.597
19 .439 1.831 93.428
20 .385 1.603 95.031
21 .372 1.551 96.582
22 .315 1.311 97.893
23 .278 1.157 99.051
24 .228 .949 100.000
Extraction Method: Principal Component Analysis.
Table C3: Rotated Component Matrixa for the whole respondents
Component
1 2 3 4 5 6 7
Low interest rate on loans .787 .111 .099 .151 .027 .012 .056
High interest rate on saving .784 .184 .139 .161 .029 .072 -.146
Attractive interest rate within short time .635 .356 .064 .190 .000 .110 -.076
Phone banking facilities .613 .063 .202 -.039 .211 -.295 .055
Internet banking facilities .593 .073 .294 -.040 .068 -.390 .000
Low service charge .561 .034 .206 .069 .213 .164 .110
Security arrangement .412 .013 .121 .029 .340 .411 .214
Good customer services .093 .831 .027 .084 .060 .024 -.018
Speedy/ quick services .185 .745 .006 .001 -.031 .041 .073
Reception at the bank .221 .633 .129 -.081 .104 -.214 .372
My employer influence -.010 -.265 .651 .345 -.138 -.029 -.089
Extended operation hours .301 .089 .643 .000 .116 .228 -.033
Availability ATM services .241 .147 .591 -.083 .173 -.042 .080
Variety of services offered .295 .417 .538 -.072 .156 -.117 .153
Establishment time (open before others) .095 -.030 -.149 .695 .137 -.290 .086
Bank’s reputation -.006 .318 .063 .633 .320 .109 -.141
Being a government owned bank .112 -.204 .332 .585 -.132 .181 -.033
External appearance of the bank .413 .072 -.064 .528 -.072 .118 .269
Recommendation of family and/ or .207 .092 .262 .360 .323 .068 -.349
friends
Advertisement via mass-media .278 .123 .018 .111 .698 .003 -.066
Several branches -.182 -.218 .202 .135 .546 -.029 .325
Availability of parking place nearby .493 .183 .056 -.109 .511 -.002 -.190
Proximity to home and/ or workplace .001 -.017 .052 -.001 4.329 .792 .107
E-5
Pleasant bank environment .021 .243 .035 .053 .006 .211 .778
Extraction Method: Principal Component Analysis.
Rotation Method: Varimax with Kaiser Normalization.
a
Rotation converged in 12 iterations.
Table C4: Reliability Test
Reliability Statistics
Cronbach's Alpha Cronbach's Alpha Based on N of Items
Standardized Items
.833 .833 24
Table C5: Total Variance Explained for Male Customers

Comp Initial Eigenvalues Extraction Sums of Squared Rotation Sums of Squared

onent Loadings Loadings
Total % of Cumula Total % of Cumula Total % of Cumula
Variance tive % Variance tive % Variance tive %
1 5.867 24.447 24.447 5.867 24.447 24.447 4.000 16.665 16.665
2 2.325 9.686 34.132 2.325 9.686 34.132 2.899 12.079 28.743
3 1.721 7.172 41.304 1.721 7.172 41.304 1.718 7.158 35.902
4 1.532 6.382 47.686 1.532 6.382 47.686 1.717 7.155 43.057
5 1.247 5.197 52.883 1.247 5.197 52.883 1.659 6.911 49.967
6 1.149 4.788 57.670 1.149 4.788 57.670 1.593 6.639 56.606
7 1.005 4.187 61.858 1.005 4.187 61.858 1.260 5.251 61.858
8 .944 3.933 65.791
9 .883 3.681 69.472
10 .799 3.327 72.799
11 .753 3.138 75.937
12 .697 2.903 78.839
13 .665 2.769 81.608
14 .603 2.513 84.121
15 .518 2.159 86.280
16 .498 2.074 88.354
17 .473 1.972 90.326
18 .433 1.805 92.131
19 .390 1.623 93.754
20 .366 1.526 95.280
21 .332 1.385 96.665
22 .306 1.273 97.939
23 .265 1.103 99.041
24 .230 .959 100.000
Extraction Method: Principal Component Analysis.

Table C6: Total Variance Explained for Female Customers

Component Initial Eigenvalues Extraction Sums of Squared Rotation Sums of Squared
Loadings Loadings
Total % of Cumula Total % of Cumula Total % of Cumula
Variance tive % Variance tive % Variance tive %
1 5.720 23.831 23.831 5.720 23.831 23.831 4.668 19.450 19.450
2 2.572 10.718 34.550 2.572 10.718 34.550 2.102 8.757 28.208
3 1.908 7.949 42.499 1.908 7.949 42.499 2.096 8.735 36.942
4 1.856 7.734 50.233 1.856 7.734 50.233 1.950 8.125 45.067
5 1.735 7.229 57.462 1.735 7.229 57.462 1.874 7.810 52.877
6 1.381 5.754 63.216 1.381 5.754 63.216 1.692 7.049 59.926
7 1.191 4.960 68.176 1.191 4.960 68.176 1.626 6.777 66.702
8 1.098 4.577 72.753 1.098 4.577 72.753 1.452 6.051 72.753
9 .901 3.753 76.507
10 .849 3.536 80.042
11 .746 3.106 83.149
12 .680 2.833 85.982
13 .590 2.458 88.440
14 .526 2.190 90.630
15 .466 1.944 92.574
16 .406 1.691 94.265
17 .347 1.447 95.712
18 .277 1.155 96.867
19 .239 .996 97.864
20 .176 .732 98.595
21 .111 .464 99.060
22 .096 .398 99.458
23 .071 .297 99.755
24 .059 .245 100.000
Extraction Method: Principal Component Analysis.
Table C7: Rotated Component Matrix(a) for male respondents

Component
1 2 3 4 5 6 7
Phone banking facilities .737 .138 -.027 .114 -.094 .007 .131
Low interest rate on loans .685 .168 -.021 .096 .092 .322 -.180
Internet banking facilities .681 .141 -.019 .234 -.170 -.145 .000
Availability of parking facility .674 .089 .205 -.228 .012 .021 -.056
High interest rate on savings .649 .154 .195 .144 .116 .136 -.372
Low service charge .545 .161 .116 .099 .278 .131 .080
Advertisement via mass media .519 .092 .415 -.180 .002 .158 .218
ATM services .448 .244 -.008 .334 .187 -.202 -.171
God customer services .096 .835 .218 -.050 -.016 .015 -.035
Speedy services .167 .771 .083 -.039 .055 .034 .005
Reception at the bank .259 .766 -.062 -.047 -.066 -.010 -.120
Variety of services offered .381 .561 .068 .383 .005 -.155 .016
Pleasant bank environment -.047 .499 -.294 -.165 .456 .306 .243
Bank’s reputation -.026 .248 .740 .054 .083 .223 -.030
Recommendation of parents/ friends .332 -.068 .653 .283 .060 -.024 .007
My employer used the same bank .022 -.160 .083 .749 -.088 .216 .122
Extended operation hours .308 .190 .216 .573 .319 -.104 -.073
Proximity -.109 -.083 .022 .053 .784 .010 .063
Security arrangement .404 .064 .186 .051 .547 .083 .044
External appearance .250 .137 .073 .008 .208 .628 -.191
Being government owned -.020 -.189 .057 .496 .129 .609 .021
Established before others .017 -.027 .372 .003 -.343 .587 .132
Several branches .049 .000 .080 .091 .162 -.015 .794
Attractive interest within short time .429 .266 .294 .032 .181 .147 -.448
Extraction Method: Principal Component Analysis.
Rotation Method: Varimax with Kaiser Normalization.
a Rotation converged in 18 iterations.
Table C8: Rotated Component Matrix(a) for female respondents
Component
1 2 3 4 5 6 7 8
High interest rate on savings .855 .067 -.092 .080 .146 .092 .145 .208
Attractive interest within short time .828 -.008 .266 -.032 .104 .036 .114 .059
Low interest rate on loans .793 .033 .086 .107 .096 .026 -.024 .368
Phone baking .649 .222 .103 -.024 -.162 -.287 .142 -.105
Internet parking .630 -.033 .065 .078 .180 -.584 .168 .075
Parking facility .602 .331 .063 .064 .173 -.073 -.553 -.105
Good customer service .457 -.167 -.296 -.339 .139 .422 .065 -.412
Several branches -.054 .800 -.115 .065 .117 .057 .091 .071
Advertisement .245 .676 .208 -.049 -.145 -.006 -.193 .020
Pleasant bank environment -.053 -.057 .800 .186 .002 .236 .156 .045
Reception .167 .072 .792 -.100 .184 -.238 -.003 -.009
Variety of services offered .408 .128 .486 .252 .132 -.134 -.258 .166
My employer used same bank .046 -.079 .046 .811 .051 -.091 .055 .130
ATM services .127 .416 .148 .537 .215 -.184 .058 -.373
Extended operation hours .355 .356 .136 .474 -.376 .096 -.207 .083
Speedy services .406 -.385 -.036 -.454 .166 .167 -.250 -.062
Recommendation of parents .119 -.120 .192 -.002 .758 -.054 -.130 .023
Bank’s reputation .090 .444 .050 .111 .645 .104 .308 -.010
Being government owned bank .459 -.034 -.293 .441 .472 .028 .024 -.059
Establishment period .271 .151 .053 -.119 .421 -.264 .403 .376
Proximity .005 .059 .034 -.105 .002 .828 .119 .017
External appearance .343 .049 .129 .142 .073 .121 .807 -.085
Low service charge .454 .014 .048 .208 .086 -.052 -.094 .733
Security arrangement .187 .304 .389 -.133 -.133 .272 .192 .424
Extraction Method: Principal Component Analysis.
Rotation Method: Varimax with Kaiser Normalization.
a Rotation converged in 14 iterations.