2015 Cambridge Business & Economics Conference
ISBN : 9780974211428
DETERMINANTS OF CUSTOMERS’RETAIL BANK CHOICES IN SRI LANKA
PradeepRandiwela
Department of Marketing
Faculty of Management and Finance,
University of Colombo
Sri Lanka
(+) 94 718161312
p_randiwela@yahoo.co.uk
p_randiwela@mkt.cmb.ac.lk
RuwikaShalika Fernando
Institute of Human Resource Advancement
University of Colombo
Sri Lanka
+ (94) 715333112
ruwika.fernando@gmail.com
July 1-2, 2015
Cambridge, UK
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2015 Cambridge Business & Economics Conference
ISBN : 9780974211428
DETERMINANTS OF CUSTOMERS’RETAIL BANK CHOICES IN SRI LANKA
Abstract:
Service organizations need to focus heavily on how to attract and retain customers effectively. No
service organization would be able to attract and retain customers without satisfying their needs,
wants or expectations. Therefore, service organizations needs to understand customers’ value
proposition in order to attract and retain their target customers. To be profitable in a competitive
industry, any service organization needs to offer customers more value.Organizations fail in
achieving their goals if they fail to identify thecustomers’unique value in general, and in selecting
bank1 in particular. The intense competition that exists in the market for financial services
presents a big challenge to the profitability of retail banking institutions of all sizes 2. Customer
churn has become critical in the banking sector in general and in the retail banking in particular in
Sri Lanka. Bankers provide many reasons for such a move yet formal academic studies are
lacking in this regard. Hence this article is an attempt to understand the retail bank selection
criteria from the customers’ perspective.
Banking being a service oriented, the “SURVQUAL” was the predominant model used for the
study. This research was carried out with special reference to business executives3 in Sri Lanka.
Findings of the research provides many insights for policy makers in the banking sector in Sri
Lanka.
Key Words: Retail Bank Choice, Customer perception, SERVQUAL. Sri Lanka, Business
Executives, retail banking perspectives.
1
Khazeh, K., & Decker, W. (1992). How customers choose banks. Journal of Retail Banking, Vol. 14, No. 4,
winter, pp. 41-4.
2
Mokhlis, s. (2009). Determinants of Choice Criteria in Malaysia Retail Banking: An Analysis of Gender Based Choice
Decisions. European Journal of Economics, Finance, and Administrative Sciences Iss: 16
3
Business executives were considered as individuals who have higher disposable capacity for retail banking
transactions.
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INTRODUCTION:
Customers are exposed to diversified choices, given competition and they are much concerned
about the value for money. This means in other words there are unlimited switching choices. The
competition in the banking has dramatically increased during the last couple of decades in Sri
Lanka due to many new players entered in to the sector as liberalized economic policies
introduced in early 1980s. The banking customers are now provided with a wider choice in
selecting a bank. Hence, banks need to identify factors that influence customer choice of bank and
work on improving customer attraction and retention.Many retail banks in Sri Lanka try to be
competitive in the market by following the market leaders i.e. if one of the market leaders comes
up with a new product /or service, others do follow the same, irrespective of the appropriateness
and the degree of suitability of the product/service to the customer’s unique value proposition. As
such the the market followers may also come up with a more or less a similar product. This has
failed as a strategic move in Sri Lankan context to attract customers and retain them for a long
term benefit.
Based on the preliminary interviews the researchershad with retail bank customersas a pilot study,
most of them were of the view that all the retail banks in Sri Lanka provide retail bank solutions
at different levels. However, they cannot find a perfect retail bank which fulfills all their needs
and wants at the same time. For example, a bank that provides a comparatively low interest rate
on housing loans does not provide a customized or personalized service to the customer and has
fewer number of branches,thereby it cause many inconvenience to the customers. Therefore, on
the other hand, banks are experiencing increased customer switching. In a similar situation with a
different customer the decision of his or her choice of retail bank is different because different
individual customers have their own unique preferences, requirements, attitudes and perceptions.
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Hence, there is a drastic need for retail banks in Sri Lanka to identify the factors that determine
customers’ retail bank choice in order to attract and retain term.
Although many researchhave been conducted on the same issue in other countries, no such a
study has been conducted in Sri Lankan context. Hence this study is an attempt to bridge the
observed gap in the existing body of knowledge.
THE OBJECTIVE OF THE STUDY:
The main objective of the study is to empirically investigate and identify the determinants of the
customers’ retail bank choices inSri Lanka. The findings of this study will help the decision
makers of retail banks in Sri Lanka.
SPECIAL REFERANCE ON THE RESEARCH:
This research is carried out with special reference to business executives in Sri Lanka. The
business executives are considered to be the most prospective segment in terms of their earning
capacity.Therefore, the findings of the research has derived only focusing on this segment as this
segment plays a significant role in the retail banking sector inSri Lanka.
METHOD/S:
Focusing on the business executives in Sri Lanka the researchers has selected sample of 140
business executives in the Colombo City limits using the convenience sampling method. A selfadministered questionnaire was distributed among 247 business executives in 34 reputed
organizations situated in Colombo as it is the largest commercial city in Sri Lanka.
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The sample was inclusive of business executives from 3 public entities & 31 private companies.
Finally the data gathered on 140 duly completed questionnaires wereused for this study. In
addition face to face discussions and informal interviews were carried out with to 20 business
executives selected on a judgmental basis..
CONCEPTUAL FRAME WORK:
The conceptual frame-work with regard to the study was designed using the findings of the
previous research conducted elsewhere. The Figure1 shows the framework used for the study.
Banking business being a service oriented, the SURVQUAL4 model was also used as an
underlying tool to move forward with the research.
LITRETURE REVIEW:
Eight main factors were identified from a comprehensive literature survey for this purpose. The
researchers have searchedthe literature mainly globally&locally which includes inputs and
empirical literature.The literature review mainly focuses on how different researches have
addressed similar type of
Africa,Malaysia,
issues from different parts in the world including South
Pakistan,
Bahrain,Nigeria,Kuwait,
Ukraine,America,Bangladesh,Iran,India,Sweden, UAE, Poland, Singapore, and Hong Kong, and
what factors that determines the bank choice in such countries by different customer segments.
The findings of each similar study mainly depended on the type of customer segment i.e.
undergraduates, post graduates, business customers, households and other demographic segments.
4
Parasuraman, A., Zeithaml, V.A. and Berry, L.L. (1985)
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Figure 1:Conceptual Frame Work
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It is also revealed that regardless of thestructure, private banking products andservices should not
only be confined to abank's domestic headquarters and should be frequently offered tocustomers
throughout any bank's globalnetwork of affiliated entities, includingbranches and representative
offices inany region of the world aspeople can use the bank servicesanywhere, at any time, to
fulfill theirfinancial needs and wants
BACKGROUND OF THE SRI LANKAN RETAIL BANKING INDUSTRY
The retail banking industry in Sri Lankais broad in nature and it caters to the individuals who
earns a monthly income through a salary. Almost all commercial banks or specialized banks in
the country offer retail banking productsto individual consumers or in other words provides
personal financial services. Retail banking can also be called consumer banking or personal
banking .
Commercial and Retail banking started in Sri Lanka in mid nineteenth century Nadaraja (2010)
with the introduction of the money economy resulted from local and international trade and
commerce and also with the change in the economy from the subsistence to plantation
agriculture .In early stages during the colonial and early post-colonial period for about ten years
after the independence , individuals and most of the businessmen had very little access to
banking. Therefore retail banking was very limited and done only by affluent retail clients
during that period (Nadaraja 2010)
Before 1825 there were no banks in Sri Lanka. The first bank to be set up was a privateinstitution
established by Peiris and Peiris in Kandy in 1828. It was called the Bank of Kandy and was
established in the early days of the coffee era with a view to meeting the needs of expanding
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commerce and trade. That is the first joint stock commercial bank in the country,
Karunatilaka(1986).At the time of independence, the financial system in Sri Lanka was
elementary and fragmented.Himali (2008).
However, with the major changes that took place in the political, economic and the social life in
1970s due to the change in government under the United Left Coalition there were developments
in the banking sector with the formation of the two local banks-Hatton National Bank and
Commercial bank which subsequently became the largest private banks. This was also the
beginning of the intense competition among banks for a higher share in the market and this
competition has grown immensely with further developments in the banking sector including the
increase in the number of banks in Sri Lanka.
With such competition that already exists in the present banking industry, banks focus more on
how to improve their individual market share and to be profitable and also to survive in the
competitive industry complying with the regularity frameworks ,co-operate governance and code
of business ethics, which is a challenging for banks in Sri Lanka. Nowadays theSri Lankan
banks have focus on the above mentioned since there were examples for failures in retail banks
in the past Sri Lankan banking industry. In 2002 the failure of Pramuka Bank and in 2009
where Seylan bank had liquidity problems due to a collapse of a related company (Golden Key)
of the Ceylinco group.
Present banking sector comprises of 24 licensed commercial banks and 9 licensed specialized
banks totaling to 33 banks who provide customers retail banking services all around the island in
very large scale. The licensed commercial banks further comprises of 12 domestic banks and 12
foreign banks. Therefore the total bank branches and other outlets which provides retail banking
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services to customers in Sri Lanka is 6478 as at the end of the 1st quarter of 2014.(Central Bank
Sri Lanka5).
Table 1: Banks in Sri Lanka
As at 31.03.2014
Total Licensed commercial banks
24
Total number of branches
2794
Total number of other bank outlets
2864
Total number of branches and other bank outlets of licensed commercial banks
5658
Total licensed specialized banks
09
Total number of branches
645
Total number of other bank outlets
175
Total number of branches and other bank outlets of licensed specialized banks
820
Total number of branches and other bank outlets
6478
The Table 1 shows the present composition of the Sri Lankan retail banking industry since all
most all these banks provide retail banking solutions in the country.In addition to the above
segregation Sri Lankan banks can also be divided as private banks and government or state
banks. Out of all the banks that provides retail banking services in Sri Lanka, Bank of Ceylon,
Peoples Bank ,National Savings Bank are large state banks that plays a major role in the retail
banking sector.When considering the private banking sector Commercial Bank, Hatton National
Bank, SampathBank ,National Development Bank, DFCC, Seylan Bank, Nations Trust
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www.cbsl.gov.lk
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Bank,Union Bank,and PABC do also contribute to the Sri Lankan banking industry in large
scale.
All these banks are regulated by the Central bank of Sri Lanka and governed mainly by the
monetary law act of 1949 and the banking act (revised) of 1988.
Presently almost all the banks in Sri Lankamainly provides banking solutions to retail customers
and co-operate customers around the country. That is retail banking and cooperate banking.
Retail banking products can be by way of a deposit product, loan product or in the form of other
facilities which are also innovative products(ATM services) due to the technological
advancement in the banking industry. All retail banks in Sri Lankaprovides the following product
categories in different names to attract and retain individual customers.
Deposit Products: - current accounts, savings accounts, term deposit accounts. Loan Products: housing loans, vehicle loans, personal loans, educational loans, leasing, hire purchase. Other
Products: - foreign exchange, contingent liability products (bank guarantees, letter of credits)
pawning credit cards, debit cards, ATM facilities-banking products (internet banking, mobile
banking,and SMS banking.
DISCUSSION:
The researchers has analyzed the level of importance given for the present main bank selection
by the sample, for all 27 factors grouped under the eight main factors using the percentage values
of the respondents.
From the entire analysis of the this study,it was found that the security and stability of the bank
were the most (80.5%) considered factor among the most critical factors followed by
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theavailability of large number of ATM’s and reputation of the bank were of highly considered
by the business executives when they select their
main retail bank to for their banking
transactions.
Figure 2:- Level of importance given for the convenience
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Figure 3:- Level of importance given for recommendation of others
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Figure 4 :- Level of importance given for service quality
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Figure 5 :- Level of importance given for reputation and Price
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Figure 6 :- Level of importance given for security, attractiveness and availability of
other facilities
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SUMMERY AND CONCLUSION:
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 other hand, practically this study can help
decision makers of retail banks in Sri Lanka to identify the most critical factors that needs to be
taken in to consideration when taking decisions in relation to introducing new bank products ,
services and value additions to this segments as well as in devising appropriate marketing
strategies for reaching and attracting this market segment in Sri Lanka.
In addition this study reveals that business executives gives a very important consideration for
factors such as secure feeling which generates from the stability of the bank, availability of large
number of ATM’s which is a convenience factor and reputation of the bank followed by
assurance, reliability, responsiveness , availability of hazel free processors ,proximity, being
empathetic ,having less documentation, availability of parking facility , having extended banking
hours and offering attractive interest rates on loans and deposits. Further as an additional finding
the study revealed that business executives give less important consideration for factors such as
recommendation, reputation of the management and attractiveness when they select a retail bank
to fulfill personal banking needs.
According to this research the business executives have given their highest consideration in
bank selection for the factor secure feeling. This can be justified with the fact that there were
instances of failures of Sri Lankan retail banks in the recent past Therefore it can be said that
presently even in Sri Lanka people are very much concern about how safe and secured their bank
is to deal with. As a result the bank regulator in Sri Lanka the Central bank of Sri Lanka has
introduced a deposit insurance scheme which provides some sort fall back in a crisis situation.
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Moreover, the central bank of Sri Lanka has also been regularly advising the public to always
deal with a financial institution which is registered with central bank of Sri Lanka. Therefore, it
is important for banks to concentrate on enhancing the stability of the bank and ensure to create
confidence about their respective banks among business executive customers before
implementing marketing strategies to attract new and retain existing customers in Sri Lanka.
In addition to the security, the business executives do consider availability of large number of
ATM’s as very important. Most business executives with their busy work schedules do not prefer
to stay in banks for (long) hours in queues for simple retail banking transactions such as cash
deposits, withdrawals, and bill payments etc..Being a part of the work force in the Sri Lankan
economy business executives prefer their respective retail bank to have a large ATM network as
they could operate their bank account from any part of the country.
Furthermore, reputation of the bank or the bank image is also given a very important
consideration by the business executives when selecting their own retail bank in Sri Lanka.
Business executives do consider about this factor as they feel confident about their own bank
which has a very good reputation. Specially,reputation of the management and the board of
directors were considered more importantly then the reputation of the socalled bank by the
business executives. Bank reputation can be measured in different ways.Reputation among the
public about the bank, status of reputation given by rating agencies. Accordingly business
executives prefer to deal with a retail bank with high reputation as they feel more secured when
dealing with a retail bank with a good reputation.
Finally banking policy makers shouldconsider on the most critical factors which effects the
choice of a retail bank by the business executives so as to attract and retain them.
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