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Analysis On Banks Lending Money Finance Essay

Introduction

This chapter shall discuss the results of the survey which was conducted and analyse these results in relation with the aims of this study. Questionnaires were the first method used in obtaining data. Further, a focused group discussion was done to clarify results. The following shall discuss each method’s results and analysed the same.

Questionnaire Results

Profile

1. Length of Time in Business.

Based on the data gathered, majority of the sample respondents are engaged in the business for 5-7 years, which comprises 60% of the tallied data. Those engaged in their business with 7 years or more which, each of which comprise 10% of the tallied data.

2. Nature of SME Business.

The results showed that half or 50% of the respondents in this study are businesses that are engaged in providing customer service. This is followed by SME’s engaged in product retail, which comprises 30% of the tallied data. Those SME’s engaged in outsourcing ranked last, which comprises 20% of the tallied data.

3. Primary Clients.

The results showed that majority of the SME’s clients are the general population. This is understandable since majority of the respondent’s nature of business is in lined with customer service. Forty per cent of the tallied data are clients from the general population. This is followed by professionals, which comprise 30% of the tallied data, housewives with 20% of the tallied data and lastly by students and other members of the population with 5% each of the tallied data.

4. Credit Service Provider.

Based on the gathered data, 70% of the SME’s in the survey seek credit service from banks. This is followed by cooperatives, which comprised 20% of the tallied data and then by personal financiers which is 10%.

5. Number of Years Seeking Credit Service from Banks.

The results showed that majority of the respondents have been using their bank’s credit service for 5-7 years. This result comprises 60% of the tallied data. Those engaged in their bank’s credit service for 7 years or more followed this, 3-5 years, 1-3 years and less than a year which, each of which comprise 10% of the tallied data.

6. Seeking Credit Service from Other Banks.

Based on the results of the survey, more than 70% of the respondents acquire other bank’s credit service. On the other hand, nearly 30% of the SME’s respond that they do not seek for credit service of other banks aside from their current banks.

7. Schedule of Credit Service Acquisition.

Based on the results of the questionnaire, 50% of the respondents acquire credit services occasionally which is usually once to thrice a year. This result is followed by those SME’s acquiring credit services for three to five times in a year, which comprise 20% of the tallied results. Furthermore, this is followed by SME’s acquiring credit services five to eight times a year and then those of more eight times a year, each of which comprise of 15% of the tallied results.

Reliability of Bank’s Credit Service

1. Imposition of Strict Conditions Prior to the Lending of Money.

Majority of the respondents respond that banks impose strict conditions prior to the serving of the borrowed money. This result comprises 70% of the tallied results. On the other hand, 30% of the SME responders answered that their banks do not impose strict conditions.

2. Conditions of Banks Prior to Lending of Money.

Most of the SME responders commonly answered that among the strict conditions imposed by the banks are: site visitation by the bank authorities, documents for submission such as approved board resolution by the company’s board of directors in relation to the acquisition of such loans, secretary’s certificate to attest this resolution, tax declarations of the company, latest financial statement of the company and other significant documents relevant to the application of loans.

3. Length of time for awarding the applied credit service.

Based on the results of the survey, majority of the SME’s received their loans within 15-30 days upon application. This result comprises 50% of the tallied results. Others receive their loans within 30-45 days upon application date, which comprise 30% of the tallied results. This is followed by more than 45 days of serving from the date of application and less than 15 days, both comprises 15% of the tallied results.

4. Instances where the Credit Services were Unavailable.

The SME respondents were asked if there were times where the credit services were not available from their banks. Majority of the respondents answered that on the midst of the banking crisis, there were times that the credit requests of their companies were denied. This result comprises more than 80% of the tallied results. On the other hand, however nearly 20% of the SME respondents answered that their banks were able to grant their credit requests at all times.

5. Frequency of Inquiring the Available Services of the Bank.

The SME respondents were asked on how often they inquire regarding the available services of their banks. Majority of respondents answered that they sometimes inquire regarding the said service. This result comprises 60% of the tallied results. On the other hand, other respondents reply as to often inquire regarding their bank’s services, or 20% of the tallied results in the survey. This is followed by SME’s that always and never inquire regarding the credit services offered by their banks. Both of these responses registered 10% on the tallied results.

6. Rating on Bank’s Response to Queries.

The SME respondents were asked to rate their banks in relation to their responses on queries. Most of the respondents answered that their respective bank’s response were good. This result tallied 70% on the survey results. On the other hand, other SME’s rated their banks as excellent, which comprises 20% of the tallied results. Finally, 10% of the SME respondents rated their bank’s response on queries as fair. No respondents answered that their bank’s response is poor.

Perceptions of Loyalty by Clients on Bank’s Services.

1. Do you think that your bank is flexible enough to adjust to the changes in the business environment and the changing needs of customers?

The above question was asked from the SME respondents. Majority of the respondents answered that their banks are flexible enough in adjusting changes with regards to the business environment as well as to their client’s changing needs. This response comprises 60% of the tallied results of the survey. On the other hand there are respondents that believe that their banks are not flexible enough in adjusting to the needs of their clients. This response comprises 30% of the tallied results of the survey. Finally, there are SME’s that are unsure whether their respective banks are flexible on times that there will be a change in their need which is 10% of the tallied results of the survey.

2. Switching Banks

The SME respondents were asked if in any occasion they have considered in switching from their current banks. Based from the gathered results, majority of the respondents did not consider switching their banks. This response comprises 50% of the tallied results from the survey. These SME’s did not consider switching banks because of the service the banks have been providing them, however, they have considered seeking additional services from other banks to complement their company’s needs.

On the other hand, there are 40% of the SME respondents that consider in switching banks to provide their credit needs. The cited reasons for these are the interest rates that their current banks impose as well as the very strict imposition of requirements prior to the granting of the applied credit.

Finally, there are 10% of the SME respondents that haven’t decided whether their business will consider switching banks. The reasons cited for this are these SME’s are not yet aware of the services as well as the conditions of other banks with regards to credit service.

3. Reasons for Switching Banks.

The SME responders were asked for reasons why they consider towards switching banks. Most of the reasons cited are the costs or the interest rates being imposed by the banks. This response comprises 70% of the tallied results of the survey. The other reason cited is the uncertainty in borrowing money from the other bank. This response comprises 20% of the tallied results of the survey. Other reasons that were cited are the very strict imposition of requirements prior to the granting of the applied credit.

4. Brief Opinions and Perceptions on the Image and Identity of Partner Banks.

The SME respondents were asked to give a brief opinion regarding their perceptions on the image and identity of their partner banks. Most of the respondents believe that their banks are trustworthy enough and are doing their best in terms of providing and servicing them for their credit needs.

Perception of the Banking Crisis

The SME respondents were asked regarding their knowledge about the banking crisis. Most of the responses are that the financial crisis was intensified following the bankruptcy of the Lehman Brothers in September 2008. This had made the current financial and economic environment face a very difficult time for the world’s economy, central banks as well as the entire global financial system. This fall out can be said as an epoch of change for central banks and the financial regulatory systems.

The respondents elaborated that the manner in which they were affected by the crisis when the international banking system collapsed leading to drying up of credit. Living in the credit-driven environment, both individuals as well as the corporate sector found it difficult to face the “no credit” situation. Government-driven rescue packages were being announced across the world to save their respective economies. The amounts were running into hundreds of billions of their home currencies. The magnitude was so huge and the event so wide spread, that it spread across various sectors and various economies.

Finally, the respondent’s confidence towards the banks was slightly affected. The SME’s felt that with the intense credit crisis, their credit requests would be constantly denied. This is because of the reason that banks would be much strict in terms of granting the credit requests as a form of a precautionary measure because of the existing credit crisis.

Analysis of Data Gathered

Switching Costs

Borrowers can switch their banks in the second period but it incurs switching cost. We consider this switching cost to be heterogeneous among borrowers assuming that they incur idiosyncratic switching cost distributed uniformly on tractability. They learn their individual switching cost only at the end of the first period and it is not observable by others including banks. As a consequence, banks cannot make a contract conditional on individual switching costs. This allows banks to make positive profit in the Bertrand price competition. Given relatively good quality of borrowers in average, the heterogeneity and private character of switching costs render poaching rival's borrowers to be profitable. A fraction of high quality borrowers whose switching cost is low will have an incentive to switch their bank if the loan rates which are been offered by outside banks are more attractive. The assumption about switching cost is rather natural to the extent that borrower’s satisfaction or dissatisfaction about a bank can be different according to individual preference to bank’s services, and borrowers can measure them exactly only after having the relationship. Switching costs may capture direct cost of closing an account with one bank and opening it elsewhere, the cost associated with other application procedures with other banks but also loss of relationship benefit between borrower and his former bank.

A borrower faces switching costs in a relationship with an individual bank, it would be costly to borrow from a single lender if its primary bank is in financial distress. This implies that default risk would be more sensitive to our bank health measures if the bank-firm relationship is close.

Loyalty to a Bank

Based on the data gathered, it was found out that in the banking business, both satisfaction and switching costs can be regarded as loyalty antecedents; however, satisfaction influence on loyalty is greater than the influence of switching costs.

The survey and the focused group interview conducted proved that consumers appear to perceive little differentiation between financial providers. They may be motivated by convenience or inertia. Finally, many consumers associate high switching costs in terms of the potential sacrifice and effort involved with changing banks.

The surveys also found out SME’s that are retained as customers do demonstrate immunity to competitive pull. This has supported the exploratory study conducted by Strandvik and Liljander (1994). The researcher has drawn that if the bank-customer relationships were strong and that customers did not pay attention to competitor’s advertising or make comparison to other banks. These findings are similar to Christopher et al.’s (1991) study that suggested prospective customers become actual customers and move along the “ladder of customer loyalty” to become clients, then supporters and finally, advocates.

It is noticed that the SME’s retention improve profitability, principally by reducing costs incurred in acquiring new customers. There is, however, a distinction between SME’s who are retained and those who are loyal. The inertia prevalent within the industry of financial services implies that SME’s may be retained may not necessarily be loyal. True loyal SME’s are usually portrayed as being less price-sensitive and more inclined to increase the number and/or frequency of purchases. They may become advocates of the organisation concerned and either directly or indirectly influences the decision making of their peers or family. The links between customer loyalty and organisational profitability have been also demonstrated, suggesting that an organisation with loyal customers enjoys considerable competitive advantage (Reichheld, 1996). Loyal customers have a positive effect on customer retention but customer loyalty is not customer retention. Loyalty is only a valid concept in situations where customers have options to choose from. The main issue is that retention should not be taken as a substitute for loyalty and this suggests that banks need to understand why their consumers choose to stay and should not assume that it is a positive conscious choice (Colgate et al., 1996).

Similarly, repurchase alone is not an indicator of loyalty. In financial services, continued customer support, which might even include extending the range of purchases, can often be an indication of inertia. Behavioural patterns form only one component of loyalty and if the consumer does not demonstrate a favourable attitude towards a brand or company, there is an increased chance of switching. Customers may be lured away by attractive offers made by competitors when they experience dissatisfying incidents (Jones and Farquhar, 2003).

Clearly, there are compelling arguments for bank management to carefully consider the range of factors that increase customer retention rates. To date, there is a wealth of research advocating the importance of customer retention in the banking industry (see Fisher, 2001; Marple and Zimmerman, 1999). However, there has been little empirical research undertaken to investigate the constructs that lead to customer retention in the banking industry. Previous empirical work has focused on identifying some of the constructs that are thought to be precursors to customer retention and other studies have focused on developing a measure of customer satisfaction, customer value and customer loyalty without, examining other potential constructs (such as competitive advantage, customer satisfaction, switching barriers, corporate image and behavioural intentions) and their link to customer retention.

Many banks choose not to engage in price wars however service can be an effective competitive tool. Varki and Colgate (2001) argued that nothing can replace quality service. Quality service, as perceived by the customer, has an effect on the perceived value of the service rendered. The relationships between the service events, the customer’s prior and post perceptions, and perceived and actual quality of delivered service all jointly determine the success or failure of generating value (Grot and Dye, 1999). Woodruff (1997) argues that the concept of customer value suggests a strong link to customer satisfaction. Both concepts describe evaluative judgments about products, and both place special importance on the use situation.

Spreng et al. (1996) suggested that customers create a set of objectives, learned from past and present experiences, about what value they desire in the process of making an evaluation. The customer value hierarchy suggests that desired value is composed of a preference for specific and measurable dimensions; the attributes, attribute performances, and consequences linked to goals for use situations. Desired value, in turn, guides customers when they form perceptions of how well or poorly a product has performed in the use situation. That is, they evaluate use experiences on the same attributes, attribute performance, and consequences constructed in their desired value hierarchies. Further, Siles et al. (1994) reported that customers have always been reluctant to switch banks, but impersonal, unfriendly service will still drive them away.

The Effect on Switching Costs

SME markets have a dimension that is local. This comes with entry barriers and switching costs and there is room in exercising market power. In the banking business both satisfaction and switching costs can be regarded as loyalty antecedents. However, satisfaction influence on loyalty is greater than the influence of switching costs. Researchers established a relationship between overall satisfaction and customer intentions to recommend a bank and to remain a customer. Despite the fact that financial products still are not differentiated, the customers in the banking sector cannot make objective assessments of service quality, that is why the concept of trust is very important here.

Switching costs inhibit a return to the local currency even after a successful stabilization effort. These well known incentive effects give rise to the conjecture that once de facto dollarization has reached a threshold. It may also well persist, leading to the observation of dollarization hysteresis. Each of the foregoing indices depends upon a number of economic variables that reflect the relative incentives to hold the different assets described in both the denominator and numerator of each index. These incentives include relative rates of return as reflected by interest rate differentials, inflation differentials and exchange rate depreciation as well as the relative costs and benefits associated with network externalities, switching costs and risks of banking institutions.

If the types are known only by their own banks, banks increase switching costs for the consumers in the second category, for example by offering higher limits, so that they do not respond to rate reductions of other banks. Any unilateral interest rate cut by a bank in this situation will thus attract only the undesirable first and third types of customers. Switching cost models, in general, propose that once a customer purchases a product, they become locked-in. Ausubel (1991) has listed several switching costs: (a) application costs in time, effort and emotional energy, (b) having to pay multiple annual fees by switching to another bank, (c) foregoing the benefits of a long term relationship with the current issuer, and (d) waiting time till getting the new card. Such factors allow issuers to set prices that differ from marginal costs.

Switching costs lead to higher prices and that there is a positive correlation between market share and prices. These results are in parallel with the predictions of switching cost models. In these models, a positive correlation between market share and prices arises from the incentive of the larger firms to exploit their captive customers. Smaller firms on the other hand price more aggressively in order to gain market share.

Concerning competition within the banking industry emerges that the standard competitive paradigm is not appropriate for the banking industry. Given the presence of asymmetric information, switching costs and network externalities banks can create entry barriers and retain some market power. These two strands of literature are somewhat orthogonal. The stability literature proceeds typically under the assumption that banks operate in a perfect competitive system, thus disregarding the implications of different banking structures for the safety of the sector. In contrast, the competition literature analyzes the operation of the competitive mechanism in the presence of market failures disregarding the effects on depositor’s and agent’s behaviour. Thus, whether greater competition enhances or worsens the stability of the system remains unclear.

Duration of banking relationships

The duration of bank-borrower relationships should reflect the net impact of these offsetting factors. If the value of a relationship tends to increase through time, or if firms become locked into specific banks, then the likelihood of terminating a relationship should decline through time. On the other hand, if relationships generally become less valuable over time and if switching costs are not prohibitively large, we should observe that terminations increase with time. Moreover, it seems likely that a relationship’s value will depend on a firm’s specific characteristics. Firms facing large information asymmetries with outside investors stand to benefit most from long-term bank relationships but are also particularly susceptible to holdup problems and high switching costs. Firms with multiple bank relationships have more than one potential source of inside bank financing and should therefore face lower switching costs and be less susceptible to holdup threats by any one bank. Although theory suggests that such bank-dependent firms are the most susceptible to lock-in, our findings imply that switching costs are low enough to permit these firms to change banks often. In addition, borrowers that experience positive abnormal returns after merger announcement are those with low switching costs, suggesting that the adverse effects of bank mergers may be restricted to borrowers that cannot switch easily across banks.

Since relational switching costs represent a barrier to exit from the relationship, they can be expected to increase the relationship commitment. High switching barriers may mean that customers have to stay (or perceive that they have to) with suppliers who do not care for the satisfaction created in the relationship. On the other hand, customer satisfaction is usually the key element in securing repeat patronage, this outcome may be dependent on switching barriers in the context of service provision.

Indeed, if the firm is able to manage the customer switching costs, it can still retain the customer even though the satisfaction may be lower. The longer the relationship, the more the two parties gain experience and learn to trust each other. Consequently, they may gradually increase their commitment through investments in products, processes, or people dedicated to that particular relationship.

Moreover, a switch in credit suppliers involves set-up costs and termination costs, the former include the cost of finding another supplier who can provide the same or better performance than the current supplier or the opportunity cost of foregoing exchange with the incumbent, while the latter include the relationship specific idiosyncratic investments made by the customer that have no value outside the relationship.

Furthermore, commitment prevents the negative effect of the switching costs where committed customers are less likely to switch than customers who lack commitment to a firm, thus resulting as being a more powerful determinant of customer retention than continuance commitment.

A positive association, especially in the service context, between relationship switching costs and relationship commitment exists. In particular, the impact of satisfaction on commitment is weaker in conditions of high switching costs than in alternative situations, therefore customers will tend to continue the current relationship despite less than ideal satisfaction if they perceive that the economic and psychological costs of developing a new relationship are too high.

Switching costs increase due to the established trust towards the supplier and its capability to meet promised quality levels. If customers can be persuaded to invest significantly in a specific relationship, then sunk costs increase. Additionally, if customer satisfaction is positively influenced by customisation, then a customer’s opportunity costs increase as a defecting customer risks losing the net benefits of the current relationship. However, not all companies will be able to draw profits from these saving potentials to a similar extent, regardless of whether they have already realised the existence of these effects.

Switching costs are much lower if the firm holds loans from more banks, and can threat to move its business elsewhere if a lender charges higher interest rates. Alternatively, a firm that holds loans from multiple banks is more likely to face rate reductions when its lending source becomes larger and gains efficiency. These findings are consistent with the hypothesis of informational monopolies and switching costs: the ability to obtain better loan rates from a third party reduces the extent to which any given firm loses bargaining power against a bank that consolidates.

The role of networking in switching costs

On the conducted interview with the SME respondents, there have been implications for marketing practitioner in relevance to the concept that orientation in marketing is critical in the performance of business.

Firstly, since only when the satisfaction with the core service and relationship is high, the commitment will be higher, banks have to ensure that utmost importance is given to attributes like quality, product features, product availability etc. Moreover, the staff role is critical in understanding the customer needs and in satisfying them, the higher satisfaction will then increase customer retention.

Secondly, relational switching costs can be increased only by investing in the soft or the relational assets, in terms of various adaptations to favour the customer and also the investments in other soft assets like training for the working staff of the customers etc. Since the interaction is mostly interpersonal in nature, these outcomes hold major lessons for them.

Finally, the moderating effect establishes that the investment in the relationship with the customer will raise the relational switching costs. This will help in customer retention, as the customer will not terminate the relationships even if the satisfaction is lower. It makes the entry of any other competitor difficult as he has had no investments in relationship so far.

Recovery from the crisis.

Borrowers with many lenders it is possible that the switching costs of finding credit elsewhere could be sufficiently low that the borrower simply dumps the lender when the bank gets into trouble. The typical borrower is getting 23% percent of its credit from the bank that we are studying, but the variation is large so that cases where the percentage exceeds 50% are common.

Some national competition authorities are looking closely at issues of transparency and switching costs in the financial market and at the broader concept of economic performance as it applies in the sector. Customers must have the ability and willingness to switch banks in order to drive and stimulate competition in retail banking and to return the sector to normality. But as noted above, the degree of customer mobility is low and customer-bank relationships are typically long-term because of customer inertia and because switching costs are usually high. The process itself is not without practical difficulties.

Switching costs continue to represent an important source of market power in retail banking and to have effects on competition, through the effective locking-in of customers. Banks do compete for new customers, for example by offering higher initial deposit rates, but later reduce those rates once the customers are locked in. Solutions to switching problems may include making the process easier, promoting greater consumer education and financial literacy about prices through improved transparency, or encouraging the adoption of self-regulatory codes involving simplification of the process. Although it is not without cost and practical problems, the concept of account number portability may be worthy of further study.

Customer mobility and choice is essential to stimulate competition in retail banking. However, the degree of customer mobility is low and the longevity of customer-bank relationships is long. One reason that may explain limited switching of current accounts is that both the financial and non-financial costs of switching are significant. In moving from one bank to another, consumers incur costs associated with the physical change of accounts, transfers of bill payments or lack of information. Also contractual and psychological costs are important. Switching costs represent therefore an important source of market power in retail banking. The competitive effects of switching costs are twofold. On one hand, they lead to the exercise of market power once banks have established a customer base which remains locked in. And on the other hand, they induce fierce competition to enlarge the customer base. In this sense there is a strong element of competition for the market. Thus, switching costs may lead banks to offer high deposit rates initially to attract customers and to reduce them subsequently, when consumers are locked in. This pattern seems consistent with empirical observations and stylized facts. Policymakers can facilitate switching in a number of ways. First, they can help promoting greater consumer education and financial literacy about financial alternatives for example by inducing more information about prices and more transparency. Second, they can encourage the adoption of a self-regulatory code between banks for the use of “switching packs”. These consist in arrangements that simplify the administrative steps for switching and hence reduce costs. Third, policymakers may promote the use of account number portability although this arrangement still raises a number of important concerns related to the potential high costs of its installation, the lack of non-discriminatory access to the payment system and the risk of losing the ability to identify banks through account numbers.

A related issue concerns the need for competition authorities to adapt to the evolution of financial markets. Financial innovation and changes in the structure of markets may have not always been taken into account in past decisions and interventions. For instance, merger control is still very much focused on the effects of consolidation on retail banking and, in particular, on deposits and lending to small and medium enterprises. Whereas this is certainly warranted due to the presence of switching costs and relationship lending, it is also important to recognize the growing importance of electronic and online banking as well as other forms of innovation that may change the structure of retail banking. Concerning this, it may also be possible for competition policy to try and influence the structure of financial systems, for example, by removing barriers to entry or facilitating switching of depositors. One concern with this is, however, that greater facility of switching may also generate greater instability as depositors may be induced to withdraw their funds more easily thus potentially exacerbating simple illiquidity problems of financial institutions.

Final Analysis.

Some banks may be well-known for having high-quality staff that is experienced evaluators of investment projects. A low level of losses on loans may indicate high monitoring/screening capabilities. A borrower that faces switching costs may favour such a bank since it increases the probability of correct evaluation of future loan applications (profitable projects obtain loans). Thus, problems of lock-in and high switching costs are likely to be more pronounced in markets for credit lines than in other loan markets. Therefore the quality of a bank should be more important for credit line customers than for other loan customers. The researcher therefore apply and test the hypothesis that credit line borrowers are willing to pay extra for borrowing from a bank of high quality.

The empirical results that borrowers facing high switching costs do not seem to care about the future lending capacity of their bank. All banks with one minor exception were recapitalized such that lending activities could continue. This may explain why borrowers are not concerned with bank solvency.

Generally the existence of switching costs results in market segmentation and reduces the demand elasticity (Klemperer, 1987). Moreover, even in the presence of small switching costs, the theory predicts that smaller the proportion of customers that are ‘new’ to the market, the less competitive prices will be. Thus, even with non-co-operative behaviour, switching costs result in a retail bank interest rate adjustment of less than one to a change in the market’s interest rate (Lowe and Rohling, 1992).

Regulation may be needed to promote open and common standards, minimise switching costs and allow flexible pricing. Given that asymmetric information is less of an issue with large corporate firms and that the size of transactions will reduce the relevance of switching costs, one would expect a priori, that the banking market for large corporate and financial firms would be much more integrated. Four specific pieces of empirical evidence concern the segmentation of the market for bond issue, loans, cash management services include liquidity management, check clearing, factoring, A/R management, short-term lending and hedging. So the picture that emerges is one of a fully integrated market for corporate/investment banking services and a fragmented retail market created, in part by asymmetric information and the existence of significant switching costs.

At the global level the results of a large-scale empirical study reveal that image is indirectly related to bank loyalty via perceived quality. In turn, service quality is both directly and indirectly related to bank loyalty via satisfaction. The latter has a direct effect on bank loyalty. At the level of the dimensions underlying aforementioned constructs, it becomes clear that reliability (a quality dimension) and position in the market (an image dimension) are relatively important drivers of retail bank loyalty.

Chapter Summary

After the conducted survey and focused group interview with SME’s regarding their relationships with banks that provide them credit services, the following important notes were the results:

· 70% of the SME’s in the survey seek credit service from banks. This is followed by cooperatives, which comprised 20% of the tallied data and then by personal financiers which is 10%.

· Majority of the respondents answer that on the midst of the banking crisis, there were times that the credit requests of their companies were denied. This result comprises more than 80% of the tallied results. On the other hand, however, nearly 20% of the SME respondents answered that their banks were able to grant their credit requests at all times.

· Finally, the respondent’s confidence towards the banks was slightly affected. The SME’s felt that with the intense crisis, their credit requests would be constantly denied. This is because of the reason that banks would be much strict in terms of granting the credit requests as a form of a precautionary measure because of the existing credit crisis.

After the data gathered from the respondents, the following are the most important analyses made on this study:

· The respondents elaborated that the manner in which they were affected by the crisis when the international banking system collapsed leading to drying up of credit. Living in the credit-driven environment, both individuals as well as the corporate sector found it difficult to face the “no credit” situation. Government-driven rescue packages were being announced across the world to save their respective economies. The amounts were running into hundreds of billions of their home currencies. The magnitude was so huge and the event so wide spread, that it spread across various sectors and various economies.

· At the global level the results of a large-scale empirical study reveal that image is indirectly related to bank loyalty via perceived quality. In turn, service quality is both directly and indirectly related to bank loyalty via satisfaction. The latter has a direct effect on bank loyalty. At the level of the dimensions underlying aforementioned constructs, it becomes clear that reliability (a quality dimension) and position in the market (an image dimension) are relatively important drivers of retail bank loyalty.

· Therefore the quality of a bank should be more important for credit line customers than for other loan customers. The researcher therefore apply and test the hypothesis that credit line borrowers are willing to pay extra for borrowing from a bank of high quality.

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