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This work examined the relationship between investments in service quality programmes by banks on their financial performance as well as the relationship between service quality delivery and the choice of banks and repeat purchase decisions by bank customers. The aim being to enhance Nigerian banks image in the global financial market. Banks in Nigeria continuously declare huge annual profits despite the fact that there has been seemingly increasing cases of complaints about the quality of services these banks render to their customers. This study investigated causality between investments in service quality programmes and the financial performance of Nigerian banks. Survey approach was used in obtaining the primary data and panel data for the secondary data. The use of cointegration method enabled the estimation of relationships among the research variables. Pearson Correlation and Regression methods of data analysis were employed to verify the relationship between investments in service quality programmes and financial performance of these banks using the SPSS Version 22 software package. The aggregated results indicate that profitability of Nigerian banks is not a function of investments in service quality programmes and that choice of banks by customers is not a function of service quality experiences. However, there is a positive relationship between service quality and repeat purchase decisions. Also, there is a positive but insignificant relationship between volume of deposits and investments in service quality; there is also a positive but insignificant relationship between investments in service quality programmes and the earnings of banks. These findings clearly show the absence of a strong relationship between investments in service quality programmes and financial performance in the Nigerian banking sector. This is an indication that there has not been marked improvement in the provision of quality banking services that would draw the attention of customers. Based on the findings, it was recommended that to be able to achieve patronage on the part of the customers in the increasing competitive banking business, banks should organize their operations according to the needs expressed (or in several cases even not expressed) by the customers so as to attract and maintain such customers. There is the need to evaluate those service quality attributes that contribute to customer satisfaction and loyalty so as to explore the possibility of investing in such service quality programmes which can have the potential for impacting on profits of banks.




The service sector of the economy has increasingly assumed and is playing a major role in most economies of the world and citizens living in such economies are living in increasingly service-based economies. As a result, the service sector plays a dominant role in creating value in such economies and by extension, the purchasing patterns of consumers and managerial decisions of the providers of these services, to a large extent, are influenced by activities of stakeholders in this sector. 

Before the end of the twentieth century, agriculture was the prominent industry that contributed most to national income even in some of the developed countries. This trend is being reversed as recent developments indicate that the agricultural sector contributes only about 2% of Gross Domestic Product (GDP) in the United States of America (Drucker, 2002), because the agrarian age paved way for the industrial age and the industrial age in recent times, has had its share of GDP reduced to roughly 15%.  On the contrary, there has been a dramatic surge in the growth of the service sector as pointed out by Auka (2012) who argued that the service sector accounted for 77% of total employment and 70% of GDP in the U.S.A. Kotler (2003) also posited that services account for nearly 60% of personal consumption in the U.S.A. with the service sector representing 76% of economic activities. In Europe, the service sector accounts for 65% of economic activities and employment figures of almost 70%. He also asserted that the service sector has grown faster in the world economy, making up a quarter of the value of all international trade.These results are indicative of the dramatic global growth of the service sector.

In developing economies, the service sector is not an exception because services constitute an increasing percentage of GDP in many of such countries. In Sub-Saharan Africa, services contributed 47% of growth over the period 2000-2005, while the manufacturing industry contributed 37% and agriculture only 16% (Oluba, 2008). In Nigeria, extracts from Central Bank of Nigeria (2014) and Barungi (2014) reports indicate that the sectoral contribution to the country‟s GDP in 2008, 2013 and 2014 is as follows: Agriculture 33.9%, 32.5% and 20.28%, Services 26.1%, 32.3% and 36.62% and industry 42,3%, 35.2% and 21.85% respectively. These statistics indicate a sizeable contribution of the service sector of the service sector to the economy.

Service offer includes all those non tangible economic activities that provide want satisfaction. Stanton (1981) defined services as those separately identifiable essentially intangible activities which provide want satisfaction, and which are not necessarily tied to the sale of a product or service. In this study, service is regarded as any economic activity whose output is not a tangible product. Thus, services are essentially intangible activities which provide want satisfaction which include among others financial services.

For the service sector to maintain dominance, the quality of services being provided should meet or exceed customers‟ expectations. Quality portends an embodiment of value(s) that is/are capable of meeting standard expectations or requirements. This explains why Crosby (1979) sees quality as conformance to requirement. In view of this, Khan, and Mahapatra, (2009)  posited that it is imperative for the operators in the sector to seek for ways of improvement in the delivery of services which they provide. Service providers who seek improvements in profits ought to monitor and employ means of improvements in service quality on a continuous basis.

This has led to the conception that service quality needs to be defined on the basis of the requirements or expectations of the customers. In this regard, a customer‟s expectations of service quality and the overall impression such a customer has and experiences with the service and the service provider form the basis for the service being regarded as of quality and it represents a long run overall evaluation or experience with a given service offer. It is a critical prerequisite and determinant of competitiveness for establishing and sustaining satisfying relationships with customers. Service quality is used in the evaluation of services provided to customers or for making comparison between expectations and actual service performance. Auka (2012) defined service quality as the consumer‟s appraisal of a service‟s overall quality. Similarly, Lau, Cheung, Lam, & Chu (2013) viewed service quality as the degree of discrepancy between customers‟ normative expectations for service and their perceptions of service performance, while Gefan (2002) viewed service quality as the subjective comparison that customers make between the quality of the service that they want to receive and what they actually get. From these definitions, service quality is a customer‟s view point of an experience with the service offer. In this study, service quality is viewed as an assessment by the customer of a firm‟s service performance compared with the customer‟s general

expectations of how that firm should perform in relation to other firms in the industry.

The service sector of an economy is definitely diverse, encompassing a great variety of activities including the financial sector which is essentially the backbone of every economy. This is the sector responsible for the provision of the requisite financing to all the sectors of the economy. Perhaps, it is in the bid to improve the management of this sector that institutions providing financial services are rapidly changing their strategies/approaches and manner in which these services are being provided.

Arungai (2014) found out that Kenyan banks in recent times have been preoccupied with innovations in the services they offer and how they offer them. Similarly, Auka‟s (2012) statement relating to the fact that banks have experienced dramatic changes leading to increased demand for non-traditional services including automation of a large number of services and a move towards emphasis on the customer rather than the bank product is an indication that bank executives have realised the need for improvement in service quality. Consequently, they have devised approaches or strategies aimed at improvement in banks‟ service quality delivery. This is the position of Appannan, Doraisamy, & Hui (2013) when they posited that service quality is an imperative element impacting customers‟ satisfaction level in the banking industry. This perhaps explains the deployment of service quality programmes by banks in an unprecedented manner.

However, in Nigeria, the concept of service quality is largely a new phenomenon since the Nigerian market is largely dominated by primary goods. As a result, quality concerns emerged only more visibly with the introduction of Structural Adjustment Programme (SAP) in July, 1986 (Oyejide, & Bankole, (2001). The introduction of specialised services/consultancy jobs and expatriate professional services into the Nigerian service sector, coupled with intense competition, particularly with the liberalisation of the banking industry, contributed to the concerns for quality as a means for improvements in financial performance in the Nigerian economy. 

This phenomenal shift led to the concern for improvement in service quality, particularly in the banking sector. This new spirit brought about competition which meant that banks had little or no choice than to intensify the marketing of their services as foreigners were allowed to own financial institutions without domestic participation.

These foreigners are conversant with the effect of service quality on customers‟ behavioural patterns. The placement of increased emphasis on service quality by operators in the banking industry is aimed at achieving customer satisfaction, creation of new markets, protection and development of market shares, and surviving the competition so as to enhance customer loyalty (Ivanauskiene & Volungenaites, 2014) for long-term financial performance, survival and success in the industry. One of the most important tasks of business managers is profitability and it is a primary goal of businesses because without profitability long run survival cannot be guaranteed. In this study, profitability refers to excess of revenues over expenses.

The quest for increased deployment of quality programmes in the banking sector is hinged on the fact that the policy thrust of the Nigerian banking industry in recent times is anchored on the achievement of efficiency and effectiveness in the provision of banking services that can ensure depositors‟ trust and confidence in the face of grave failure that characterised the banking industry in the recent past. This policy thrust can only be realised when managers and policy makers in the Nigerian banking industry employ strategies that can give them a competitive edge or comparative advantage over other global players in the industry. This is based on the premise that the business environment has in recent times become largely competitive and almost borderless. 

From the foregone, it could be inferred that the introduction of improved service delivery programmes by the new generation banks necessitated the need to create a niche by financial service providers in Nigeria via the provision and delivery of quality banking services. To buttress this, Williams, Ogege, & Ideji (2014) posited that effective customer service in the banking sector is one of the most important means of ensuring that customers come back to a particular bank despite the hurdles in the sector.

The reality of the scenario in the Nigerian banking industry does portray the contrary as studies by scholars such as Olaleke (2010) indicated that poor service quality is a common feature. Woldie (2003) also found great level of dissatisfaction by many people with the quality of services that are provided by Nigerian banks. This may be evidenced by the occasional seemingly long queues in the banking halls and at ATM locations, failure of ATMs, network failures, unnecessary delays in resolving complaints, the unusually long period required before interbank cheques are cleared and tendencies of customers switching between products and banks.

In agreement with Olaleke (2010), Cuffe (2008) also found out that certain Nigerian banks that were not much conscious of quality improvement programmes and adjudged as using lowest quality operations declared huge annual profits. Similarly,

International Monetary Fund‟s report (2009) indicated that bank profits in Sub-Saharan Africa compared to other regions are high. The finding indicates that in such banks service quality alone is neither the only determining factor in the choice of banks by Nigerians nor the determining factor for profitability but other factors which are outside the scope of this study such as capital adequacy, assets quality, liquidity management or macro-economic factors. 

This scenario raises the question; are Nigerian bank customers actually conscious of service quality or not? This, coupled with instances where market stalls are burnt with huge sums of cash inside make it difficult to view Nigerian business operators as those who appreciate the value of banking such monies/money for the purposes of safety. It could even be deduced that the banks do not motivate holders of such capital to appreciate the value of banking. This scenario depicts Nigerian banking services as poor, thus not capable of attracting savings from prospective customers.

From the findings of Olaleke (2010), IMF (2009) and Cufe (2008), it could be deduced that if the banks have been conscious of service quality programmes, or have been customer focused, much profits would have been achieved or they would have attained higher level(s) of performance. Comparatively, Klynveld, Peat, Marwick and

Goerdeler (KPMG), a global network of professional firms providing Audit, Tax and Advisory Services in its 2010 banking industry customer satisfaction survey using key performance indicators including; availability and accessibility to quality of service by service delivery channels, customer care, convenience, adjudged Guaranty Trust Bank (GTB) out of the 24 banks in Nigeria, as being consistently the best customer focused bank for the third consecutive year.

The KPMG survey indicated that there was a drop in the customer satisfaction index of 6.35%, 4.64% and 3.39% for Guaranty Trust Bank, Zenith Bank and Access Bank, respectively, compared with the same rating in 2009. The decline in the customer satisfaction index (CSI) rating is an indication that Nigerian banks need improvement in product/service quality programmes.

However, there has been a dramatic surge in focusing attention on quality issues by firms globally which results from the quality philosophy that has emerged. This is seen as a major determining factor in the choice, purchase and consumption of banking services.  Service quality and indeed the use of Information Communication Technology (ICT) has become the focal point of bank practitioners. In accepting this position, Khan, and Mahapatra, (2009) attested that profitability of banks‟ business is closely connected to the quality of services they render. It means that if banks must make profits, improvements in service quality then becomes inevitable.

Quite a number of other research findings have established a great deal of positive relationships between service quality and profitability of firms {Dick and Basu (1994),

Fornell, Johnson, Anderson and Cha, (1996), Zeithaml, Parasuraman and Berry, (1996), Bolton and Lehman, (1999) Bates, Bates and Johnson (2003)}. However, quite a number of other researchers posited that much of the evidences in support of service – profit chain is anecdotal in nature. Studies such as those of Cronin and Taylor (1992), Zeithaml, Parasuraman and Malhotra, (2002), Thornton and Marche (2003), affirm that there are enormous instances or widespread evidences in support of the frustrations of managers with the inability of quality improvements to improve organizational performance. 

It is imperative to note that much of the studies on the relationship between service quality programmes, profitability and customer attitudinal changes are foreign based or conducted in Europe, America and other more advanced economies. The few known studies relating to service quality in the Nigerian banking industry include the study of the impact of service quality dimensions on customer satisfaction and customer loyalty in Nigerian Islamic Bank By Badara, Mat, Mujtaba, Al-Refai & Abubakar (2013), Williams, Ogege, & Ideji (2014) regarding a link between customers service and profitability, Adeoye, & Lawanson (2012) on customer satisfaction and its implications for bank performance in Nigeria and that of Adeyeye (2013) on the impact of customer relationship management on perceived bank performance in Oyo town of Nigeria. In all, we have not specifically identified any known Nigerian study that verified the relationship between investments in service quality programmes on the financial performance of Nigerian banks as a whole. 

Thus, there is the need to assess the relationship between service quality improvement programmes and the financial performance of banks in a setting such as the Nigerian economy because such researches have proven positive at some points but negative at other points in the same settings. This scenario explains the rationale behind this study. Also, the motivation for this study is based on the quest to assess whether recorded profits follow any given pattern as posited by Okwoli (2010). 


Where an industry is highly competitive, an understanding of the needs of the customers and other stakeholders is an important factor for success, growth or productivity factor. This has necessitated the move from product centredness to customer centredness not only in marketing circles but in business generally. Consequently, firms do not necessarily find differentiation in their physical products but in services such as timely delivery, accurate information, better trained personnel and quicker resolution of complaints, which are capable of building good reputation and superior performance. This explains why Kotler (2003) asserted that delivering superior services has become one of the most important ways to gain superior profitability. This suggests the need to study the determinants of service quality in the Nigerian banking sector to assess the relationship between service quality and financial performance in the sector. 

Banks worldwide provide homogenous services to their clients and, as a result, they are able to quickly match competitive innovativeness of competitors and innovators.

However, customers still can perceive differences in the quality of services banks render. This presupposes that service quality invariably plays a significant role in bringing about customer loyalty and/ or satisfaction (Al-Msallam 2015) and financial performance. Financial performance in the banking industry and, indeed business in general, cannot be overemphasized since it is the main stay of any business venture. Besides, to a large extent it is being used as a measure of wellness of a business venture.

In this respect, banks seek to develop reputation for superior performance, especially in faster and better response to enquiries, on-time delivery and quicker resolution of complaints. Although many banks in Nigeria have investments in service quality programmes that are aimed at providing superior services, customer satisfaction level leaves much to be desired. This is evidenced by the fall in Customer Satisfaction Index (CSI) rating of top Nigerian banks (6.35% of GTB, 4.64% of Zenith bank and 3.39% of Access bank in 2010 (KPMG Survey, 2010). This is an indication that the desired improvement in the services provided by the banks in the face of emerging global economy is not being realised. This may be evidenced by seemingly increasing complaints about unresponsiveness of bank staff, absence of needed courtesy required of service providers, rudeness of personnel, long wait times and inaccurate information which constitute elements of service quality.

It is apparent that customers who receive poor treatments will perceive the institution in bad light and this can impact negatively on its financial performance, especially for large account holders. The scenario where service quality is marred by incidences of customer complaints, poor handling of complaints, switching from one bank to another by customers and closure of accounts creates great concern to scholars and practitioners alike because they are an indication of poor service delivery. 

The findings of Cuffe (2008) which indicated that not all Nigerian banks employ quality operations, yet on the average they declare huge profits annually leaves many questions unanswered in the minds of researchers and students about the operations of the Nigerian banking industry. The major problem borders on whether there is any relationship between investment in service quality and financial performance in the Nigerian banking industry.  This study examined the relationship between investments in service quality and financial performance in the Nigerian banking sector.


In the light of the research problem, the study set to provide answers to the following questions:

i.                    What factors generally influence the choice of bank services by customers?

ii.                  Does investment in banks‟ service quality programmes have any relationship with customers‟ repeat purchase?

iii.                What is the relationship between investments in service quality and profitability of banks?

iv.                What is the relationship between earnings and investments in service quality by

Nigerian banks? 

v.                  What relationship exists between investments in service quality and deposits raised by Nigerian banks?


This research work seeks to assess the relationship between investment in service quality and the financial performance of banks. This is the broad objective that this research work intends to achieve. In order to achieve this broad research goal, the following specific objectives are hereby stated: 

i.                    To identify those indices that determine customers‟ choice for banking services in Nigeria.

ii.                  To examine the relationship between banks‟ service quality attributes and customers‟ choice for banking service in Nigeria.

iii.                To assess the relationship between improvements in service quality and repeat purchase decisions. iv. To assess the relationship between investments in service quality and earnings of banks in Nigeria.   

v. To assess the relationship between investments in service quality programmes and deposits of banks in Nigeria.    vi. To evaluate the relationship between investments in service quality programmes and profitability of banks in Nigeria.


Hypotheses are assumptions about the nature of relationships among identified variables. In this study the hypotheses are that:

Hypothesis I

Ho The choice of banks by Nigerian customers has no significant relationship with the quality of banking services these banks offer. 

Hypothesis II

Ho There is no significant correlation between bank‟s service quality attributes and customers‟ repeat purchase decisions.

Hypothesis III

Ho There is no significant relationship between investments in service quality programmes and earnings of banks in Nigeria. 

Hypothesis IV 

Ho Investments in service quality programmes has no significant relationship with profitability of banks in Nigeria.

Hypothesis V 

Ho There is no significant relationship between investment in service quality programmes and deposits of banks.  


The banking sector is the pivot on which the other sectors of the economy revolve and depend on for their financing needs thus, the wheel of a nation‟s economic growth. This explains why Jat (2006:20) rightly observed that the state of the banks is no doubt an evidence of the state of the national economy.

The findings of this research work are of tremendous value and relevance to financial researchers in specific terms and academics in general. The study has achieved this by adding to the array of literature and information needed for decision making, research and study. This work pointed out areas that can be exploited for further research which is another area of benefit to would be researchers. 

Due to the significance of this sector also, the outcome of this research work is quite helpful to bank practitioners in the area of planning and resolution of negative trends relating to service quality. This helps practitioners to be better placed and equipped in the face of the global and intense competition in the industry.  This study is of benefit to banks‟ stakeholders such as managers and regulatory authorities in improving the soundness desired of the Nigerian banking sector by boosting the impact of positive factors and at the same time lessening the impact of those negative factors. The study also avails financial analysts, other operators/beneficiaries and stakeholders in the banking industry with needed information for any advisory banking services. It is also expected that this study has added value to the concept of service quality and services marketing generally. 

The findings of this study are a vital tool in assisting government and government agencies charged with the monitoring of banking operations and enforcement of regulatory frameworks in ensuring standardisation in the banking industry generally. It acquaints customers on the concept of service quality and the role of banks in the provision of quality bank services. 

1.7             SCOPE OF THE STUDY

Since virtually all sectors of the Nigerian economy depend on the financial sector for all their basic needs, the need to study this sector in a research of this nature is quite relevant. This study is targeted at Nigerian money deposit banks only. Thus, the nation‟s apex bank, other financial institutions/ regulatory agencies which are not profit oriented in nature are exempted. The choice of money deposit banks is as a result of the fact that they are greater in scope of operations, serve a greater proportion of beneficiaries of financial services and are, by far, more representative of the providers of financial services in Nigeria. This explains why this category of financial services providers are usually seen as playing a more significant role in the development of a nation‟s economy perhaps, more than others. Besides, money deposit banks as service providers deal with considerable level of operational and marketing complexities, and require very frequent investments in quality programmes which make them interesting for studying service quality dynamics and its effect on customers‟ attitudes which invariably affect financial performance of banks. 

The period within which this study covers is 2006 to 2013. This is due to the fact that this is the post consolidation period which brought about intense bank marketing and competition nationally and even globally, resulting from higher degree of interconnectivity than ever before, thus, the application of more operational strategies aimed at gaining more customer loyalty and profitability via several service quality programmes.


The following factors have delimitations on the research:

a.       The bureaucratic bottleneck associated with the process of obtaining data relating to quality service, financial performance and customer‟s attitude towards use of

bank services.

b.      The non co-operative attitude of respondents in filling and returning


c.       The tendency of respondents providing biased information or even falsifying and exaggerating information that may tend to invalidate the findings of this research work or make it unreliable

The triangulation approach used in obtaining data from both the customers and depositors via the use of the questionnaire helped in reducing the adverse effects of these constraints.


The following terms are hereby defined for the purposes of clarity.

Service – Service refers to those intangible and essentially identifiable activities which provide want-satisfaction, but are not necessarily tied to the sale of a product or another service.  

Quality – Means the totality of characteristics of an entity that bear on its ability to satisfy stated or implied needs.

Service quality (SQ or SERVQUAL) – This is the situation where a service offer meets or exceeds customers‟ expectations or requirements at a given time.

Service Performance (SERVPERF) – this refers to the ability of service offer to measure up to an expected or desired need as viewed from the customer‟s perspective.

Profitability – This refers to the ability to attain the level where there exists excess revenues over expenses expressed in monetary terms. The accountant views profit as the excess of revenues over costs while the economist‟s view of profit includes indirect costs as well. The accountant‟s view of cost is best suitable for the purposes of evaluating the profitability of an organisation‟s current business.

Financial Performance – This is a measure of how well a firm uses assets from its primary mode of operation to generate revenues. It is also used as a general measure of a firm's overall financial health or soundness over a given period of time which can be used to compare similar firms across the same industry or to compare industries or sectors in aggregation.

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