Privatized banks and state owned banks in Pakistan

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A well functioning financial system is necessary for enhancing the efficiency of intermediation, which is achieved by mobilizing domestic savings, channeling them into productive investment by identifying and funding good business opportunities, reducing information, transaction, and monitoring costs and facilitating the diversification of risk. This results in efficient allocation of resources, contributing to a more rapid accumulation of physical and human capital, and faster technological progress, which in turn lead to higher economic growth. Anxious to achieve higher growth, policy makers in many developing countries saw public ownership of banks and other financial institutions as necessary in order to direct credit towards priority sectors.

Pakistani banking industry is now running in a dynamic challenge concerning both customer base and performance. Pakistani banking sector has witnessed rapid changes over a period of 63 years since 1947. Initially it suffered from a shortage of resources and uncertainty due to unstable political and socioeconomic conditions. There was expansion in Banking network, size and structure due to the establishment of commercial banks, micro finance institutions and Islamic banks in all over the country and resulted into an increased competition among banks to attract a large number of loyal customers by the provision of quality services for strategic benefits. Banking industry in Pakistan has shown a tremendous growth as the best performing sector having banking assets of more than $ 60 billion. More than 80% of banking assets are owned by the private sector while foreign investors contributed 47% of total paid up capital.

Banking sector, high quality service is always emphasized. This is the only part in banking which assures business success. Banks in Pakistan have also started paying attention to the enhancement in service quality because of the intense competition with foreign banks. Workshops and seminars are arranged for the training of employees into quality issues. Whatever measures are taken to improve the service quality, Service quality, customer retention, customer satisfaction, customer loyalty are now the major challenges in gripping the banking sector. Service quality plays a major role in getting customer satisfaction and creating brand loyalty in banking sector. To attain a competitive edge customer loyalty is strongest weapon against competitors in current dynamic business scanerio,which is also sustainable by providing best and quality customer services.Human element acts an important role in perceived service quality as well as satisfaction. Public sector banks need to redefine the customer service parameter in order to compete with the nationalized private sector banks both in profitability and corporate image.

The financial sector reform process started in early 90's, poses lot of challenges before the banking sector in Pakistan as never before. once nationalisation of commercial banks in Pakistan started in mid 70's, the ownership of major commercial Banks HBL,MCB,ABL,UBL was taken over by the Government of Pakistan. Then, the Government decided the agenda for action, directing the flow of credit.After nationalisation, competition was restricted and the banking sector was insulated from world financial markets. Over a period of time, the prevailing environment created a mindset, where one began to look for guidance for everything.

This study examines the responses of customers of State Owned banks and privatized banks with reference to service quality due to an increased competition for the provision of diversified financial services. Better quality services resulted into greater customer satisfaction and reduced customer erosion Service quality in banking sector contributes a lot to gain competitive advantage to maintain long-term relationship with customers (Zeithmal et al., 2000). Demographic characteristics should be considered by the bank managers to understand their customers. Customers' perception of service quality differs in terms of gender, ethnicity, education and income (Urban and Pratt, 2000).

Problem Statement

Privatized banks are performing better than state owned banks in Pakistan on the basis of service quality? They provide better environment to their customer and serve better according to the customer services. On the other hand government banks have traditional culture and old setup of their services. In some of the branches they have manual set of data entry which takes more time to serve the customer and daily operations. Government owned banks have big draw back in the financial innovation for example Auto Mated Teller Machines (ATM) which is not well operating as compare to the privatized banks.

Objective

The study would attempt to investigate, whether the privatized banks outperform their state owned counterparts or not? In order to answer this question a detailed comparison of key service quality indicators can be conducted but in order to narrow down the study only 8 banks are selected. These selected privatize banks are MCB bank limited.habib bank limited, ,UBL and bank alhabib ltd state own banks are National bank of Pakistan (NBP),the bank of punjab,first women bank and askri bank limited The choosen variable on the bases of proposed service quality are…

Tangibility

Responsiveness

Assurance

Reliability

Empathy

Literature Review

Ahmad, A., Kashif-Ur-Rehman, Saif, I., & Safwan, N. (2010) examines the perception of bank customers regarding service quality of the Islamic banks as well as privatized banks in Pakistan. In today's global and border less market, service quality is gaining importance for successful survival of banks. This study is important due to an emerging trend of Islamic banking practices in Pakistan besides privatized banking to replace Riba based products with the sharia'h compliance products. Data were collected from 720 bank customers by using stratified random sampling. It is found that the perception of customers of Islamic banks regarding service quality is higher than the perception of customers of privatized banks. The results indicate that there is significant difference in perception of service quality among customers of Islamic banks on the basis of gender but there is no significant difference in service quality perception of male and female customers of privatized banks. The study has a number of implications for bankers, policy makers and academicians. It provides a guideline to Islamic banks for provision of marketable products to meet expectations of male and female customers according to their specific requirements. This study enables policy makers and bankers to make effective and quality oriented arrangements to have satisfied and delighted customers for long term benefits. Academicians are required to conduct research in the banking sector for beautiful blending of theory and practice to analyze the quality of services for increased satisfaction among bank customers. This study examines the service quality perception of bank customers in the existence of two banking systems, that is, Islamic and privatized banking systems. Islamic banks are getting popularity due to interest free products, risk sharing activities and strong ties with the religion. The existence of Islamic and privatized banks in Pakistan created stiff competition among banks to attract and retain greater number of customers by the provision of quality services. The emergence of Islamic banking practices necessitated the comparison of service quality perceptions of bank customers between Islamic and privatized banks. Data were drawn from 720 respondents by stratified random sampling residing in major cities of Pakistan. It is concluded that customers of Islamic banks have greater perception towards service quality than the customers of privatized banks. The results showed that there is significant difference in the perception of male and female customers of Islamic banks while there is no difference in the service quality perception among customers of privatized bank on the basis of gender. Bankers can attract more customers by launching effective marketing campaigns to enhance awareness towards quality of their services. Bank managers should take quality initiatives to improve their products by considering demographic characteristics of the customers. It provides a guideline to Islamic banks for provision of marketable products to meet expectations of male and female customers according to their specific requirements. Bankers are required to develop an effective strategy to attract the female customers by meeting their specific needs. This research is useful for Islamic banks because they make heavy investments to attract larger customers for better profitability but these efforts are useless until and unless proper customer anagement. So Islamic bank should enhance awareness regarding its products (services) to compete with privatized bank for long term benefits and they should introduce new products/services according to Shariah principles. This study enables policy makers and bankers to make effective and quality oriented arrangements to have satisfied and delighted customers for long term benefits. It inspires the academicians to conduct research in the banking sector for beautiful blending of theory and practice to analyze the quality of services for increased satisfaction among bank customers.

Mishra, U. S., Sahoo, K. K., Mishra, S., & Patra, S. K. (2010) examines banking industry of India is now running in a dynamic challenge concerning both customer base and performance. Service quality, customer satisfaction, customer retention, customer loyalty and delight are now the major challenges in gripping the banking sector. Service quality plays a major role in getting customer satisfaction and creating brand loyalty in banking sector. Most of the literature reviews referred in the paper reveals that as compared to public sector, private sector bank customers' level of satisfaction is comparatively more in India. Human element acts an important role in perceived service quality as well as satisfaction. Public sector banks need to redefine the customer service parameter in order to compete with the nationalized private sector banks both in profitability and corporate image. This study is just a small step in understanding the multi dimensional construct of service quality and its implications in competitive environment. This paper attempts to extract few dimensions of service quality as perceived by bank customers and compares with five major dimensions already extracted in past literature. Delivering customer satisfaction is at the heart of modern marketing, which is a post-purchase judgement of the consumers. The study on service quality in banks is measured in five dimensions by using the SERVQUAL scale developed by Parsuraman et al (1988). The analysis of responses clearly reveals that there exists a small perceptual difference among customers regarding overall service quality with their respective banks. The expectations exceeding performances are clearly visible with Indian banks. However, the results of principal component analysis indicate that though the dimensions suggested in the model are comparable with the sample results, but the contents of the factors are different. The respondents of both the banks mostly focus on people (staffs of the banks) factor for improving customer satisfaction; while the banks are focusing on tangible factors such as computerisation, ATMs, etc. to attract customers.

Jobling, E., Walker, G., & Heffernan, T. (2009) identifies service quality attributes that small-to-medium-sizedenterprises (SME's) in Australia desire in their choice and retention of a bank. A qualitative research method was adopted for the purposes of the paper. In-depth interviews were undertaken with a convenience sample of twenty-three practising accountants. The results of the study show that SME's are desirous of a range of service quality attributes from their banking partners, these attributes can be categorised under five broad themes, namely, employee capabilities, credit accommodation, price competitiveness, accessibility, and internet banking. Further, the findings of the study suggest that banks operating in Australia stand to benefit from the development and management of SME customer relationships. The study offers marketing implications for banks that are providing, or are planning to provide services to the SME customer segment in Australia.This study offers significant insights as to the service quality attributes SME's in Australia desire in their choice and retention of a bank. The results show, that the attributes SME's desire of their banks can be categorised under five broad themes or dimensions, namely, employee capabilities, credit accommodation, price competitiveness, accessibility and internet banking. The findings of the paper indicate that the key factor that connects each of these dimensions is relationship management. Strong evidence has been presented that suggests that banks stand to benefit from the development and management of SME customer relationships. However, it needs to be noted that the evidence presented in the paper is based on a qualitative study, and, as such, caution should be exercised in making generalisations from this research.

Akroush, M. N. (2009) examines the mediation effect of service quality implementation on the relationship between technical service quality and banks performance. Drawing on relevant literature, the author empirically tested a model of technical service quality, service quality implementation and performance on a sample of 346 managers of banks in Jordan. The study findings have indicated significant implications for banks managers in Jordan in relation to the mediating role of service quality implementation on the relationship between technical quality and banks performance. The findings of this study indicate that the technical service quality has a positive and significant effect on banks performance. The majority of relationships between the technical quality and banks financial and customer-based performance measures are fully mediated by service quality implementation variables; even their effects vary among performance measures. The findings indicated that marketing capabilities exerted the strongest mediation effect on the relationships between the technical service quality and banks performance. This study examined the direct and indirect relationship between the technical service quality and banks performance operating in Jordan. In general, all the research hypotheses are supported. The findings of this study indicate that the technical quality has a positive and significant effect on banks performance measured by financial-based and customer-based measures. The findings indicate that the relationship between the technical quality and banks performance is indirect and is a complex one. These empirical findings provide a strong support for the service quality literature that advocates that the relationship between technical quality and performance is indirect and other variables have an important role to play on it. Generally speaking, the majority of relationships between the technical quality and banks performance measures are fully mediated by service quality implementation variables; even their effects vary among performance measures. The findings indicated that marketing capabilities exerted the strongest mediation effect on the relationships between the technical service quality and banks performance measured by financial-based and customer-based measures. Organisational factors exerted the second strongest mediation effect on the relationships between the technical service quality and banks performance measured by financial-based and customer-based measures. Meanwhile, corporate image exerted the weakest mediation effect on the relationships between the technical service quality and banks performance especially those measured by customer-based measures then financial-based measures. The findings indicate that organisational factors exerted a stronger mediation effect on the relationships between the technical quality and financial-based measures than their effect on the customer-based measures. The strongest mediation effect of organisational factors is the relationships between the technical service quality and banks' sales volume and market share. Meanwhile, the weakest mediation effect of organisational factors is the relationships between the technical service quality and banks' profitability as well as on the customer-based measures. The findings indicate that marketing capabilities exerted a stronger mediation effect on the relationships between the technical quality and the customer-based measures than their effect on the financial-based measures. The strongest mediation effect of marketing capabilities is the relationships between the technical service quality and banks' financial-based measures is on banks' sales volume and market share, respectively. Meanwhile, the weakest mediation effect of marketing capabilities is the relationship between the technical service quality and banks' profitability. Meanwhile, there is a strong mediation effect of marketing capabilities on the relationships between the technical service quality and customer-based measures. The findings indicate that corporate image exerted a stronger mediation effect on the relationships between the technical quality and financial-based measures than their effect on the customer-based measures. The strongest mediation effect of corporate image is the relationships between the technical service quality and banks' sales volume and market share, respectively. Meanwhile, the weakest mediation effect of corporate image is the relationship between the technical service quality and banks' profitability as well as on the customer-based measures. The study findings hold important managerial implications for banks managers. The main issue is that a bank may view service quality as a strategic driver of performance to achieve a predetermined set of long-term objectives. The ability of a bank to achieve its strategic service quality intents on performance relies on service quality implementation activities and capabilities. The focal issue here is that a bank's customer does not see service quality strategy, but experiences its implementation that should be positive in the customer's mind. Consequently, banks managers need to comprehend issues of service quality implementation to maximise the impact of service quality on performance. This relies on the banks abilities to implement the intended service quality strategy that requires, for example, cross-functional teams, interdepartmental integration, employees and managers motivation, and commitment, understanding customers' needs, having superior customer relationships, positive word of mouth, excellent reputation and superior customer service. The technical service quality is relatively similar among banks since it is the outcome of the functional service quality or the interaction process between the bank and the customer. Consequently, a bank can maximise the customer value through having unique marketing capabilities, cross-functional integration between a bank's units, teamwork and distinguished image in the customers' minds.

Naeem, H., Saif, M. I., & Khalil, W. (2008) explained Emotional intelligence is the innate potential to feel, use, communicate, recognize, remember, describe, identify, learn from, manage, understand and explain emotions. - S.Hein, 2007 Emotional intelligence and service quality--this study was designed to examine the relationship between the said two variables. While using teacher made tools from the body of knowledge, data was collected through a self administered questionnaire from the officers of two leading banks in Pakistan; one was foreign bank that paid more attention to the improvement of service quality and the other one was well reputed, fastest growing local bank, did not spend much on quality issues as was the practice in foreign bank. SPSS version 12 was used for data analysis. The empirical analysis revealed that emotional intelligence is a strong predictor of service quality in case of foreign banking in Pakistan. From the above analysis, it is concluded that use of emotional intelligence skills is high in case of a foreign bank i.e SCL. The research findings have also indicated that emotional intelligence is a positive predictor of higher service quality in Pakistani private / foreign banking sector. Hence we can say that emotional intelligence is strongly related to dimensions of service quality indicating that when employees of the organization practice the skills of emotional intelligence, it enhances service quality.

In case of The Bank of Punjab, a local Pakistani Bank, emotional intelligence is a week predictor of service quality in Pakistani public sector. It means that in The Bank of Punjab, both the variables i.e. emotional intelligence and service quality are weakly associated and hence it can be said that there is an absence of practice of emotional intelligence skills by the employees when delivering services to the customers.

Dror, S. (2007) this work discusses an innovative methodology for deployment of service quality characteristics. Four groups of organizational features that may influence the quality of services are identified: human resource, technology, planning, and organizational relationships. A House of Service Quality (HOSQ) matrix is built to extract the desired improvement in the service quality characteristics and to translate them into a hierarchy of important organizational features. The Mean Square Error (MSE) criterion enables the pinpointing of the few essential service quality characteristics to be improved as well as selection of the vital organizational features. The method was implemented in an engineering supply enterprise and provides useful information on its vital service dimensions. The House of Quality (HOQ) model, a product oriented quality analysis technique, supported by the MSE criterion, was applied in an innovative way to reveal the unique organizational efforts that need to be adopted by an individual enterprise in order to improve its quality service characteristics. A House of Service Quality (HOSQ) matrix was built to extract the desired improvement in the service quality characteristics and to translate them into a hierarchy of important organizational features. The Mean Square Error (MSE) criterion enables the pinpointing of the few essential service quality characteristics to be improved vis-à-vis the identified vital organizational features. The method provides useful information and understanding regarding the relative importance of the organizational features: human resource, technology, planning, and organizational relationships.

Hypothesis

Study will test the following hypotheses on bases of the statement

Whether the privatized banks outperform their state owned counter-parts or not on bases of quality of their services which they are providing to their customers.

Mean equality test

H1: Privatized banks are performing better than state owned banks in Pakistan on the basis of service quality.

Ho: Privatized banks are not performing better than state owned banks in Pakistan on the basis of service quality.

Methodology

Data Collection

Through questionnaire, data will collect from eight banks. The questionnaires include the question based on customer serves quality (Tangibility, Responsiveness, Assurance, Reliability & Empathy). In the questionnaire, seven point liker scale (from completely dissatisfied to completely satisfied) was used to check major impact of it. The questionnaire was distributed among the frequently visiting customers of the banks.

The sample questionnaire use in the study will distribute among 100 customers' from 8 main banks taken from state owned and privatized banking sector. Which are dealing to the financial customers, located in Lahore, Pakistan. The sample is a true representative of the population. Most of the questions regarding customer serves quality service and its impact on the performance of banks.

Results

Gathering Data will be process by computer and visualiz graphically and tabulated form. It will examine by using statistic methods (SPSS-16), able to know the certain banks more deeply and thus it will possible to reveal more connections.

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