Service quality in the banking sector: structural equation modelling approach

This study investigates whether the perceived service quality by bank customers affects loyalty in the banking sector in Malaysia. Structural Equation Modelling (SEM) has been used to analyse the primary data collected from 537 customers of major banks operating in Kuala Lumpur and Selangor. First, the results show that customers perceive that convenience to use, empathy concerning the extent to which the bank service is provided, knowledge and competency of bank staff, reliability and security of bank service and Internet banking quality affect their level of satisfaction with the bank service. Second, it is found that customer satisfaction determines their attention to use the bank service. Path analysis also shows that attention to use is significantly correlated to bank customer loyalty. The results suggest that bank loyalty is a function of service quality. Therefore, banks should focus on customer satisfaction and loyalty to make a profitable long-term relationship with customers, as loyal customers will stay with their bank and are likely to avail themselves of new bank services, and thus generate income for the bank.