The Relationship Between Customer Satisfaction And Organisational Profitability Finance Essay

The Relationship Between client Satis occurrenceion And Organisational Profitability Finance EssayIt is well kn give birth fact that the goal of any organisation is to stir the deprivations and the requirements of its stakeh agingers. Satisfying this need will not only ensure the survival of the organisation alone similarly t come forward ensembleow it to flourish. Among the several stakeholders, guests atomic number 18 presumed to be one of the virtu totallyy important stakeholders as no organisation depose make it and make headway with by them. Accordingly, marketers emphasize on research in the ara of consumer behaviour and particularly behavioural dismisseavor. Knowledge of consumer behaviour will go a broad way in ensuring effective marketing policies towards the invade of nodes which will last facilitates positive customer attitude towards the organisations. More oddly, since customer behavioural intention is a strong attri thate of his real behaviour.2 . As a return of fiscal sector liberalization in Sri Lanka in the 1979, the brinking sector go through a boom. Low entrance requirements such as capital of Rs 10 million by the regulatory authority and the high premiums that could be bring in through foreign ex budge furrow led to the quick entry by new players into the lucrative slanging industry. In Sri Lanka between the period of 1979 to 2011 the outcome of moneymaking(prenominal)ised lingos rose from 11 to 32 (pennyral border of Sri Lanka- CBSL)63. The banking industry is passing war-ridden, with banks not only competing among each other(a) but also with non-banks and other fiscal institutions (Hull, 2002)7.Most bank product developments are easy to supernumerary and when banks provide nearly identical operate, they can only distinguish themselves on the basis of price and feature. then, customer retention is potentially an effective shot that banks can use to gain a strategic advantage and survive in todays e ver-increasing banking competitory environment. The majority of Sri Lankan commercial banks are ingests by Sri Lanka beaching companies and the States and they are not much diversified in terms of the products and services they offer. therefore almost all banks are offered almost identical products to their customers. M finiszela, was of the view that it is an indication of bank reaching the maturity phase of the product lifecycle and has do commoditized. atomic number 53 strategic focus that banks can implement to remain competitive would be to retain as many customers as possible8.4. As discussed earlier, financial sector has shown scarce growth after deregulation in Sri Lanka. The Sri Lankan financial markets withstand experienced drastic changes after financial liberalization during 1979 and that provokes arguing among financial institutions especially in banking sector. This competition leads to the introduction of customer oriented products in the market to meet the expectations of customers. Satisfaction is a multidimensional take a leak which has been conceptualized as a prerequisite for building copulationships and is generally described as the full meeting of ones expectations (Oliver, 1980).5. The most significant trend, relevant to all industries, which characterizes in 21st century, is severe competition between companies. In current operative environment, defined by constant change and uncertainty, organisations are forced to sample new ways to achieve the competitive advantage. This is particularly true for financial services industry where deregulation has brought a considerable choice for customers in satisfying their inescapably. fixs turn out high financial leverage capital structure, where customers bank deposits are considered as a bank debt. Therefore, customer turnover may result not just in diminishing dinero perimeter but also in financial services provider existence. apart from that, loyalty and satisfaction resul ting in switching to another financial services provider may be used as a competitive advantage for acquisition new market share enticing consumers of the competitor.6. customer satisfaction has become interesting tool for commercial banks with the competition and it has become a practice to keep customer satisfied by banks, as satisfied customers will enhance customer loyalty towards their banks which will in the long run improve banks carrying into action and profitability. The importance of customer satisfaction cannot be reject because happy customers are like free advertising. Many of us have heard of the current trend for businesses to become highly customer-centric, that is to put the customer at the centre of our business in terms of our strategies, actions and processes. For most of us, old truths still hold well, such as it is easier and more profi knock back to distribute to existing customers than to find new ones. In practice, organizations are progressively rang e themselves strategies to measure and ensure customer retention, and charging their staff to be more customer-focused and service-oriented. impale GROUND OF THE STUDY7. According to Central Bank of Sri Lanka the general performance of Licensed commercialized Banks (LCBs) remained healthy due to amend profitability and the fortify of their capital position. The activities of LCBs grow at a moderate pace in the first half of 2010. core assets of the LCBs expanded by Rs. 139 billion or 5.5 per cent due to a growth in lending activities united with an increase in investment in government securities and the equities market. Meanwhile, deposits increased by four per cent or Rs. 74 billion as against 9 per cent in the previous year due to the lower interest rates that prevailed in the market during the period9.8. As mentioned earlier, banking sector has shown unprecedented growth after deregulation in Sri Lanka. Sri Lankan financial markets experienced drastic changes after liberal ization during early 1979 that provokes tough competition among financial institutions especially in banking sector. This competition leads to the introduction of customer orientedd products in the market to meet the expectations of customers.9. According to the Fitch Ratings (2012)10, Sri Lankan banking sector is concentrated and dominated by reality-sector banks that accounted for some half of sector assets at end of 2010. The six large banks set as Systemically Important Banks (SIB)11accounted for 64 per cent of sector assets at end of 2010. They are Bank of Ceylon,Commercial Bank, Hatton National Bank, Peoples Bank, Sampath Bank and Seylan Bank. Fitch ratings has further pointed out that the Sri Lankan banking system experienced a strong upturn in profitability in 2010, with ROA increasing to 1.8 per cent, significantly above the 1.1 per cent average in 2000-2009, more often than not due to a reduction in credit costs. However, profitability decreased in 2011, with the secto r posting an ROA of 1.6 per cent, largely due to the contraction in take in interest margins (NIMs) with intensifying competition.10. Almazari(2011)12was of the view that financial performance of a bank is its return on investment, return on assets, value additions and net assets value of a bank labels how the bank has used it assets to generate revenue. raise Almazari has pointed out that total assets of a bank also help to survey how well a bank is using its resources to make a profit. Total assets of commercial banks in Sri Lanka for the periods 2007-2011 is given below. The modern business world has expanded and competition has been created among businesses animald on the profit. Financial services and assistance provided by the banking sector in Sri Lanka is at the top. These banks provide facilities not only for general people but also for businessmen. Customer satisfaction plays a snappy role in any successful business organization in todays business strategy.To go for ward through this business banks have to deal with each other to achieve their goals, while fulfilling the basic requirements to satisfy their customers. At the very beginning, the main part of establishing banks were to give benefit for selected rich people, but at present, all levels of people are benefited and obtained the services from banks which have universe expanded all over the country.The current banking industry in all over the world is going through turbulent times. In Sri Lanka with the sound of entry barriers and blurring product lines of banks and non-banks since the financial sector reforms, banks are functioning increasingly under competitive pressures. This situation has created banks to maintain loyal customer base for individual banks. In order to maintain a loyal customer base and improve their market and profit positions, almost all the banks are directing their strategies towards increasing customer satisfaction and loyalty through improved service quality . In the present competitive Sri Lankan banking context, characterized by rapid change and increasingly sophisticated customers, it has become very important that banks in Sri Lanka as well to determine the service quality factors which are pertinent to the customers plectrum process. Therefore the current problem for the banking industry in Sri Lanka is to determine the dimensionality of customer perception of service quality. This is because if service quality dimensions can be identified, bank should be able to improve the delivery of customer perception of quality during the service process and have greater control over the overall outcome. In relation to customer loyalty all banks in Sri Lanka has take various programmes to keep customers satisfied but according to discussion carried out earlier, public house servant banks are performing better than the government have banks in the country.12. Basically, Banks Profitability is measured with two major ratios that of Return on average out Assets and Return on Average Equity. Return on Average Assets and Return on Average Equity of five large commercial banks are for the period of five years from 2007 given below. circuit card 11 Return on Average AssetsYearBOCPeoples BankCommercial BankHNBSeylanROAAROAAROAAROAAROAAPer CentPer CentPer CentPer CentPer Cent20071.111.41.670.870.6720081.131.51.551.040.120090.821.41.431.420.3820101.61.71.61.040.8720112.012.51.981.780.64Table 12 Returns on Average EquityYearBOCPeoples BankCommercial BankHNBSeylanROAEROAEROAEROAEROAEPer CentPer CentPer CentPer CentPer Cent200714.5920.520.6335.913.84200816.1318.817.1333.62.22200912.8519.715.8328.96.2201024.0126.917.8728.510.88201133.7442.920.7624.16.78(Source Annual Reports year 2007 to 2011)13. When ROAA and ROAE averaged for the last five years ranks of the banks on two ratios are given below.ROAAROAECommercial BankHatton National BankPeoples BankPeoples BankBank of CeylonBank of CeylonHatton National BankCommercial BankSeyla n BankSeylan Bank14. From the above information it could be seen that two secernate owned banks has ranked number 2 and 3 in both ROAA and ROAE while a private bank has been the number 1 in ROAA and ROAE. This gives a mixed signal about the profitability of commercial banks in Sri Lanka.RESEARCH PROBLEM15. According to the indication given in table 1 and further analysis, in terms of major measures in bank profitability, public domestic banks were headed in both measurement and two distinguishs banks were retained second position. Therefore, the research problem for this fill is as to wherefore public domestic banks were headed in profitability and how two states banks were maintained second positions and whether it is customer satisfaction of the respective banks.OBJECTIVES OF THE STUDY16. Following objectives should be achieved at the end of this research.a. To discover the reasons that is attributed to the higher profits in public domestic commercial banks than the state own ed commercial banks in Sri Lanka and,b. To ascertain whether it is due to customer satisfaction of the private commercial banks or any other reason. importee OF THE STUDY17. Discovering the performance between public domestic commercial banks and the state commercial banks will be more significant to the banking industry as well as to the government to introduce required mechanism to inhibit the present problem if any prevailing in states banks in relation to the performances. Almost all financial institutions try to attract customers to them in the business environment .In that case commercial banks try to fulfill their customers needs in most efficient manner. Financial institutions should have the ability to identify the customers needs to give their service in efficient manner. Therefore, they have to provide inviolable products, in good time to achieve profitability in the competitive environment.18. The end results of this research that of customer satisfaction and commercia l banks profitability in state owned and public banking companies will be of great parting to the field in the academics and for the practitioners. This study will also assess and evaluate the level of satisfaction of the customers in the banking business in Sri Lanka which will institute to the industry as well as to the policy makers. It will also reveal areas and factors that need consideration for improvement. Further at the end of the research, it is pass judgment to cerate a good knowledge about what customer needs can be gained. With an understanding about the change of customer satisfaction which is count on on nature of customer, the bank can provides suitable services to their own customers. If the customer gets the service continually, the institution may also introduce innovations to their own customers.SCOPE AND LIMITATION OF THE STUDY19. Scope of this study is to analyze all data that are available to find out as to why state commercial banks are earning less profit than the public domestic commercial banks including service quality and customer satisfaction and non-performing assets if necessary arises. Accordingly, the study will be using both primary and secondary data. In studying service quality and customer satisfaction data have to be collected through a questionnaire but in analysing NPA banks actual information which are recorded in financial statements have to consider. There is no limitation in acquiring secondary data as all information are available in the annual reports of the banks. For the purpose of collecting data there is a limitation of selection of banks. Also, when considering the profit of the banks, only internal factors that are related to the banks leaving external factors as they are beyond the scope of the study.