CHAPTER ONE

1.0       Introduction

1.1    Background of Study

Like in many areas of businesses, banking is a sector that is characterized by intense competition for customers. The genesis of Nigerian banks competition for customers may be traced to a list of monetary, fiscal policies and programmes by the regulatory authorities beginning from the middle 1980’s.

First was the Structural Adjustment Programme (SAP) of 1986, which paved the way for the regulation of the banking industry. With the deregulation, the number of banks chasing the pool of available depositors grew in leaps and bonds. In the wake of this scenario, the banks began to exert more effort in their attempts to woo customers. The Nigerian banking industry also witnessed major changes in 2001, with the Central Bank of Nigeria granting all banks the Universal Banking license. This allows Merchant banks that could not perform commercial banking functions, now handle all commercial banking activities. Some distressed banks were restructured with new management teams and are operating under new names, while operating licenses were granted new banks. This has grossly increased competitive pressures as most of these new banks are

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focused on improving their liability base and quality of their risk assets. Presently, there are 88 Commercial and Merchant banks operating in Nigeria. (This exclude non-bank financial institutions).

Ogunsemore, (1992:15), confirms that the number of banks grew tremendously from 40 in 1985 to 125 in 1991. the era of “armchair banking” which was prevalent amongst the first generation banks is clearly over as to remain in business and to be competitive, banks would have to woo their customers. Armchair banking refers to a case where officers simply stayed glued to their chairs and wait for business to come.

Competition is now the key word in the market place as banks now try to woo prospective customers, and retain the existing ones by ensuring that quality service is delivered at all times to make the banks distinct in the crowded market place. Even the first generation banks realized this and have greatly improved their services and over hauled their systems to remain competitive. Also, increasingly, the blue chip companies and certain categories of customers have become over banked and margins in this sector have shrunk over time. The difference that banks can make to this sector include offering first-class service to remain competitive and relevant. (Adekanye, 1986:12).

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Nwankwo, (1994:5), emphasizes that the reform on the financial sector has been a cardinal goal of the Structural Adjustment Programme (SAP) adopted by many African countries. One noticeable feature of the de-regulation of the financial sector is that financial institutions are encroaching on one another’s territory. Non-bank financial institutions are aggressively encroaching on banking functions thereby limiting the operational latitude of the banks. New products proliferate the market, while, old products are being re-packaged. The banking industry is characterized by a high level of copycat mentality. Banks are quick to “Xerox” whatever appears successful. Intensified marketing and public relations is now the order of the day. It is believed that customers will patronize the bank, which comes closest to satisfying their particular needs and wants. The average bank customer has become so enlightened and sophisticated to demand more than just banking services. Customers will choose service and products designed from customer point of view (customer orientation). By exploring new technologically based techniques for providing banking services, most banks expanded their product offerings to enhance the deposit base and promote competitive efficiency. The level of competition in the industry has

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led to improved services; as banks continue to gradually phase out manual systems.

In the new competitive environment, banks driven by survival instincts are forced to respond to threats in the environment. Martin, (1998:203), indicates that service quality is a natural fall-out of the intense competition going on in the market. High service quality is something the banking industry as a whole seems to have forgotten for a long time, and was relegated to the background. It took the entrant of foreign banks, renewed competition, spurred by de-regulation of industry for today’s banks to re-discover quality in everything they do. Banks must strive for service quality continuously; always realizing they could fall short of perfection.

Service quality means delighting the customer by continuously meeting and improving their expectations. Exceeding the expectations of increasingly sophisticated customers is paramount. It is influenced at every level of an organization and often depends on how well the levels work together. From the gate man up to the Chief Executive Officer of the bank, should be involved in the culture of service quality because it is of paramount importance to the growth and survival of the banking institutions.

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Bankers are increasingly becoming aware of the strategic importance of improving the quality of their offer and the need to make extra effort towards satisfying their customers. The customer is king. Where the customer derives maximum satisfaction is where he/she will frequent. Because bank products and services are very similar, to be distinct and be heard in a large market place, quality of its service must set it apart from its competitors.

A lot of banks have come to realize this and are conducting training programmes for their staff to imbibe the culture of quality service and create an error-free environment. The way to the future is service excellence.

1.2       Statement of the Problem

Nearly all banks offer the same products and services; the distinction is no longer clear. Whatever new products are introduced, with time, other banks catch up. How then can a bank be heard in a large market place? Service quality is the answer. It is the ability of the bank to make its offer different from others that will keep its customers coming back.

In order to continuously exceed set goals and objectives, banks must identify what makes them different from the other, from the

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perspective of the customer and ascertain the role and impact of service quality when practiced.

Is there a growing recognition amongst banks that the way forward is enhanced service quality, otherwise, why would certain customers prefer to bank with a particular bank in the present competitive environment? This study would strive to identify that increased service quality would lead to increased market share, customer loyalty and ultimately, profitability.

1.3    Objectives of the Study

This study is aimed at achieving the following objectives namely:-

1.                 To examine the key variables that determines service quality and the extent to which all these variables are applied in the banking industry.

2.                 To ascertain the impact of service quality on customer satisfaction and loyalty.

3.                  To identify growth and profitability potentials in a competitive environment where the principles of service quality is adopted.

4.                 To identify the key issues banks are confronted with when adopting the principles of service quality.

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1.4    Relevant Research Questions

For the purpose of this study, the following research questions were formulated to act as a guide.

1.                 Why do bank customers prefer the services of one bank to the other?

2.                 To what extent do banks concern themselves with delivering service quality to customers?

3.                  What role does service quality delivery play in Nigerian banks?

4.                 What has been or will be the returns if increased service quality is practiced in Nigerian banks?

5.                 To what extent is service quality free?

1.5       Statement of Hypotheses

Ho:   Banks who do not practice service quality will not induce customer loyalty and satisfaction.

Hi:    Banks who practice service quality will not induce customer loyalty and satisfaction.

Ho:   Increased level of service quality will not bring about profitability potentials.

Hi:    Increased level of service quality will bring about profitability potentials.

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1.6    Scope and Limitations of the Study

The study concentrated on First Bank Plc (FBN) with at least 109 years of operations in Nigeria. The reason being that FBN has gone through an evolutionary change in the last six (6 ) years. It is no longer enough to be the largest bank in Nigeria; they have to fight to remain profitable and maximize returns due to the competitive pressures faced in the industry. In order to have an increased share of the mind and wallet, what will set them apart and ahead of competitions is the quality of services rendered.

The primary data was administered on members of Management of the bank, who set the goals and objectives of the bank and the strategy to be adopted to meet those goals and objectives. Secondary data and interviews were also administered. It is limited to delivery of service quality to customers in the Nigerian banking industry and focused on customer interaction within the service delivery. It would also exploit what banks are doing to improve service quality and its direct impact on the bottom line.

The study was limited to the First Bank Plc Head Office where the largest concentration of management staff are located, and the bank customers located on the Island, which includes Victoria Island, Ikoyi and Lagos Island. The sample size cannot be as large as

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