DIRE DAWA UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMIC

DEPMENYARTT OF BANKING AND FINANCE

ASSESSMENT OF FACTORS THAT AFFECT

CUSTOMER PREFERENCE AMONG BANKS IN DIRE
DAWA CITY

A RESEARCH PAPER SUBMITTED IN PARTIAL FUL

FILLMENT OF REQUIREMENT FOR BA DEGREE IN BANKING
AND FINANCE

SUBMITTED: ROBEL KUTE

ADVISOR: ISTFANOS YILMA.

APRIL, 2016

DIREDAWA,ETHIPOPA
 Abstract

This study was conduct at dire dawa city which is located in Eastern part of Ethiopia, under
the title of “Assessment of factors that affects customers preference among banks” in dire
dawa city. Bank is an organization while investors, bank employees, local communities and
government are some of the customers of bank, Since bank rendered different services to
their customers like saving account, current account, time deposits, over draft facilities, term
loans and transfer both local and foreign currencies.

This investigation was conducted to find out necessary information in dire dawa city about
customer preference among the banks exist in dire dawa city.

The general objectives of the study was to identify the facility that contribute the base for
customer preference among banks, and its result is helpful for both banks and customers to
identify factors that reduce customers interest to wards them and forward feasible
recommendations in order to solve the problems. To attain the main objectives of the study
primary sort of data was collected with the help of structured questionnaires. The sample was
drawn from specified banks.

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 ACKNOWLEDGEMENT

First of all, I would like to offer deepest thank to GOD and next my father and also Mr.
Istifanos for this valuable work and continuous help during the process of writing the
research paper and also I would like to thanks for all library for a continuous helping during
the process gather in many literature review that are important to the study.

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 Table of Content
CONTENTS PAGE
No
Abstract..................................................................................................................................I
Acknowledgement.................................................................................................................II
Table of content.....................................................................................................................III
List of table............................................................................................................................IV
CHAPTER ONE
1. Introduction................................................................................................................1
1.1 Background of the study...............................................................................................................1
1.2 Statement of the problem..............................................................................................................2
1.3 Objective of the study...................................................................................................................3
1.4 Significance of the study...............................................................................................................3
1.5 Scope of the study.........................................................................................................................4
1.6 Limitation of the study..................................................................................................................4
CHAPTER TWO
2. literature review.........................................................................................................5
2.1 Empirical review ……………………………………………………………………5
CHAPTER THREE
3. Methodology..............................................................................................................14
3.1 Research design ………………………………………………………………..
3.2 Target population...................................................................................................14
3.3 Sampling Technique..............................................................................................15
3.4 Sample size............................................................................................................15
3.5 Source of data........................................................................................................15
3.6 Method of data collection......................................................................................15
3.7 Data processing and analysis.................................................................................15
CHAPTER FOUR
4 Data analysis, Interpretation and presentation.................................................................16
CHAPTER FIVE
5 summary of finding, conclusion and recommendation................................................................25
5.2 summary of findings..............................................................................................................25
5.3 conclusion..............................................................................................................................26
5.4 Recommendation...................................................................................................................27
5.5 Reference...............................................................................................................................28

III
 5.6 Appendix................................................................................................................................29

List of table
Content page
3.1.1 No of customers from each bank..................................................................................14
4.1.1 Demographic characteristic..........................................................................................16
4.4.2 preference of bank for saving account..........................................................................20
4.4.3 preference of bank for checking account......................................................................20
4.4.4 preference of bank for loan& advance service.............................................................21
4.4.5 preference of bank for transfer service.........................................................................22
4.6 factors of bank preference................................................................................................23
List of figure
4.2.1 Customers knowledge for the service given by the bank.............................................18
4.3.1 types of service given o the customer...........................................................................19

IV
 CHAPTER ONE
1. Introduction
1.1 Back ground of the study
The banking industry has been characterized by increasing competition since the early 1980s
( Blankson 2007 ). This has been the result of a number of interrelated factors such as competition and
deregulation that have revolutionized the distribution of money financial services. In other words, an
increased competition resulting from a decade of deregulation of financial services industry has meant
that banks find themselves faced with the task of differentiating their organization and their offering
as a means of attracting customers ( Blankson 2007 )
The concern of how customer preference among banks has been given considerable attention by
researchers ( Blankson 2007, Mokhlis,2009,Mylonakis, 2007, Awang,1997,Boyd 1994 and
Almossawi,2001). Exploring such information will assist banks to recognize the appropriate
marketing strategies needed to attract new customer and retain existing one (kaynak and
kucukermiroglu , 1990). With growing competitiveness in the banking industry (Grady and Spencer,
1990) and similar of services offered by banks (Holstius and keynake, 1995) it has became
increasingly important that banks identify the factors that determine the basis up on which customers
preference between providers of banking services. Modern banking Ethiopia introduced in 1905.at the
time an agreement was reached in between Emperor Minelik and representative of the british owned
national bank of Egypt to open a bank which leads to bank of Abyssinia launched in feb, 1906 by the
emperor (Abraha 2005) this event marked the introduction of banking in the country. The bank of
abysinia was given a 50 year pleasure and was engaged in issuing note, collecting deposits and
granting loans, but its client were mostly foreign business men and wealthy Ethiopians ( Mauri,2003)
Ethiopian banking is flourishing. Financial result for the 2010 fiscal year prove an industry enjoying
high growth, high profits, and high dividends. Even the middle of challenging situation, all key areas
of banking operation :collecting deposits, providing loans and foreign exchange dealing,
showedzzrhsrda growth more than 20 percent. Even though sharing strong expiation, there are of
course prominent variation a long with banks in term of their aggregate size, revenue source customer
focus loan concentration, and operational efficiency. Presently there are 19 banks in Ethiopia of which
16 are private banks And the rest are government owned banks. Moreover looking ahead, banks will
surely by confronted by the entry some new banks, Abay, Enat, Debub global bank, and other
financial institution. with growing competitiveness in the banking industry ( Grady and Spencer,
1990) and similarity of service offered by the bank ( Holstius and Kaynak ,1997), it has became
increasingly important that bank identify the factors that determine the basis up on which customer
preference between providers of financial services in this regard, the researcher is motivated to
understand the customer preference among selected banks in dire dawa city.

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 1.2 Statement of the problem
Banking sector plays a role in the economic development of a country through mobilization
of funds from outside the country and channeling such funds to various sectors of the
economy. Banks are financial institutions that promotes and help the activities of customers
by rendering different services. In order to get the quality services and benefits from banks
users were select based on the services and fees which the bank rendered to the customers.
(Therefore customers were selecting the best bank to obtain the quality services by
considering these factors as a base for selecting to use deferent services that banks render.
These factors may be, proximity, good customer services, personal relationship ,interest rate,
diversified number of branches and other Factors.( p.cotler, 2007)
Among these study include, Maiyaki (2008) who examine the determinants of bank selection
criteria in Malaysia considering under graduate student while Mokhil (2009) attempted to
analyze gender based chose decision. correspondingly, in Bahrain (almossawi 2009) a case
of college students and in Greek (My lonkis,2007) are Research task of customer preference
in the home loan market were done. other study are also undertaken in Europe (Bosnia and
Herzegovina 2009,Greek by my loamkis,2009) and Africa (Ghana by Blanks on ,2007;
Nigeria by Maiyaki,2010; Maiyaki; 2011) Countries on issue of bank selection criteria in
line with customer preference: why and how they preference a particular bank to be serve
there. Although such studies have contribute substantially to the literature on the selection,
their findings may not be applicable to other countries like Ethiopia, due to differences in
cultural, Economical and Legal Environmental.
To the best knowledge of the researcher there is no exist previous research conducted in
Ethiopia concerning the banking selection of customer preference. Therefore, this study is
particularly intend to examine the determinants of customer preference bank in dire dawa
city. such study is hope fully expect to fill the gap in literature by scrutinizing the
determinants of customer bank selection in dire dawa city.

1.3 Research Questions

1. What are the factors that affect the customers preference for bank?
2. What are the different services that customer obtained from banks?
3. Does the customers have enough information about the services given by the bank?

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 1.4 Objective of the study
The Study under Consideration was incorporate the following basic objectives.

1.4.1 General Objectives

The general objective of this study was investigation the factors that affect customers
preference among banks exist in dire dawa city.

1.4.2 Specific Objectives

In addition to the general objective the study will include the following Specific Objectives.
- To identify the factors that affect the customer preference
- To assess the different services that customers obtain from banks .
- To know the customer have enough information about the service given by the
Bank.

1.5 Significant of the Study

This study gives a basic understanding and information to the bank on how attract customers
and service delivery system among the banks and initiated the concerned bodies to give more
emphases in the field. It also add some necessary information about factors that affect
customer preference among banks and finally it became reference for those researcher who
study related fields.

1.6 Scope of the Study.

The study was conducted in Eastern Part of Ethiopia, in Dire Dawa City, to study about the
factor that affect customer preference among banks at the Ethiopia level is very important.
However, due to times, financial and other constraints, the study is geographically delimited
to Dire Dawa City was concerned 5 banks

CHAPTER TWO
Literature review
2. Concepts and Definitions of bank.
Chambers twenty country dictionary defines a bank as an institution for the keeping, lending
and exchanging of money, economists have also defined a bank high lighting its various
functions. A similar definition has been given by Kent who defines a bank as “an

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organization whose principle operations are concerned with the accumulation of temporally
money of the general public for the purpose of advancing to others for expenditures “Thus
ordinary banking business consists of changing cash for bank and bank deposits for cash
transferring bank deposits from one person or cooperation to another, giving bank deposits in
exchange for bill of exchange, government bonds, the secured and un secured primaries of
business men to repay, thus a bank do an institution which accept deposits from the public
and intern advances loan by creating. Banks are financial institutions that accept deposits and
make loans. Included under the term banks are firms such as commercial banks, savings,
and loan associations, mutual savings banks and credit unions. Bank are the finical
intermediaries that the average person interact with most frequently.
Bank is a business establishment that safe gards people’s money and uses to make loans and
investments. Banking is as old as vivid organization. The ancient Roman developed and
advancing banking system to serve their vast trade network, which extended through out
Europe, Asia and much of Africa.

Bank is a commercial institution concerned mainly with making and receiving payments on
the behalf of its customers, accepting depots and making short term loans to private
individuals, Companies and other organizations. In the United Kingdom, the banking system
comprises the bank of England (the central bank) the commercial banks, merchant’s banks,
branches of foreign and common wealth banks.

Banking is defined as the acceptance of deposits of money from the public for the purpose of
lending or investment, such deposits may be repayable in demand or other wise and with
draw able by draft, order on other wise. Thus a bank must perform two essential functions.

i. Acceptance of deposits
ii. Lending or investment of such deposits.
The purpose of deposit and loan products normally distinguishes banks from other types of
financial firms. Deposit products pay out money on demand or after some notice. Deposits
are liabilities for bank, which most be managed if the bank is to maximize.
(The economics of money, banking and financial markets, 5 th edition, Frederic 5. mishkin,
1992, p.34)
2.2 Emergence and development of banking institutions

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It may be said that banking in its most simple form is as old as authentic history. As early as
3000 Bc.Bobay content had developed a system of banks. In ancient Greece and Rome, the
practice of granting credit was widely prevalent. Traces of credit by compensation and Egypt
before the system attained full development in Greece and Rome. The book of the old
Sanskrit are full of re regulations governing credit, he speaks of judicial proceedings in to
bankers, users and even of the renewal of commercial papers.
In Rome the bank were called Argentorioe. Some of the banks carried business on their own
account and others were appointed by the government to receive the taxes. They used to
transact their business of similar lines as those of modern banks. people seed to settle or draft
on the bank. If the creditor had also on account of the same bank, the account was settled by
an order to make the transfer of such money from one name to another. To pay money by a
draft was known as prescribe and the draft was known as attribute.

During the early periods, although banking either for the purpose of facilitating commerce of
to serve the government. The bank of Venice, established in the modern sense, simply on
office for the transfer of the public debt.

History shows the existence of “mathe” in flerence in 1336.The mining of month is given in
the Italian dictionary, 1959, drives cities of Italy. Bainbridge, an English writer, speaks about
the ‘three banks of Venice’ meaning three public loans or month.

As early as 1349, the business banking was carried on by the drapers of barcelond. There
Daring 1401, a public bank was established in Barcewna. The bank of Amesterdam was
established in 1607 to meet the needs of merchants of the cite it accepted all kinds of specie
on deposits. these deposits could be with drawn on demand or transferred from the account of
one person to another.

These written orders, in course of time, come to be used in the same manner as modern
cheques. It is interesting to note that most of the European banks existence formed on the
model of the Bank of Amsterdam.

The beginning of English banking may correctly be attributed to the London gold sixtieths.
They used to receive their customers valuables and funds for sattecase to day and issues
receipts acknowledging the same .In fact, the Gold smiths not may be considered as the

5
precursor of the bank not. The Gold smiths not may be considered as the precursor of the
bank not. The business the gold smiths, who then carried upon attiring scale what we should
now call banking used to depots third reserve of treasure in the exchanges. The gold smiths,
who then carried upon attiring scale what we should now call banking used to deposit third
reserve of treasure in the exchanges with the sanction and under the large of the government.
However, the rain of gold smiths marks turning point in the growth of private banking and
the establishment of the “Banking of England in 1694”

In India, as early as the Vedic period, banking in the most crede form existed. The bank of
menu contains reference regarding deposit dredges, policy of loans and rates of interest. True,
banking in these days largely meant monely lending and the complicated mechanism of
modern banking was not known to them.

This is true not only in the case of India but also of other countries. Although the business of
banking as old as thematic history, banking institutions have since then changed in character
and content very much. They have developed from a few single operations involving
satisfaction of a few individual wants to the community by securing speedy application of
capital the very life blood of commerce.
The early sixties show the birth of a dynamic private bank, which arise the latest competitive
sprit in the banking system. It was called Addis abeba bank was established and had
contributed a lot during its ten years existence until 1974 to wards the creation of
competitive banking sector- The Italian banks choose to stay where they were and the
cooption comes to force in 1960s and early 1970s.

Nortenaiation all private banks in 1975 effectively closed the new chapter of the emerging
competitive banking system. Until 1994, banking sector was totally closed to private sector.
(Banking theory and practice, sheker, 19th edition, p.115)

2.3 Types of Banks

Banks are of various types which are explained as under:
1. Commercial Banks: Commercial banks are those banks which perform all kind of
banking functions such as accepting deposits advancing loans, credit creation and
agency factions. They are also allied joint stock banks because they are organized in
the same manner as joint stock companies. They usually advance short term loans to

6
 customers. Of late, they have shorted giving medium term and long term loans. In
India 20 major commercial banks have been nationalized, were as in developed
counties they are run like joint-stack companies in the private sector. Some of the
commercial banks in India are Andhra Bank, India bank, Punjab National bank. Etc.
2. Exchange Banks:-Exchange banks are those banks which deal in foreign exchange
and sterilize in foreign trade. They are called foreign exchange banks. in India, these
banks have their head office located out side India, the chartered bank and the tined
lays bank have their head in England, where as the American express Bank, and city
bank have third head offices in the USA –these banks also render other services such
as collecting and supplying information about the foreign customers, providing
remittance facilities.
3. Industrial Banks: Industrial banks are these banks which provide medium term and
long term finance to industries for the purchase of land, machinery etc they under
write the debentures and shares of industries and also subscribe to them. In India,
there are a number of financial institution which perform the function of industrial
banks . Such as Industrial development bank of India, Industrial finance of India,
Industrial credit Investment Corporation of India etc these Institutions are also known
a development Bank.
4. Agricultural bank: are those banks which provide credit to farmers for short term,
medium term and agricultural cooperative banks provide short terms loans to farms on
the mortgage of their land. The National bank of Agricultural and rural development
provides refinance facility to finances to an types of banks which give loans to
agriculturalist.
5. Cooperative Banks: are those financial institutions which are organized on the
principle of cooperation. In rural area, there are agricultural cooperative banks which
accept deposits and give loans to agriculturalist, rural artisans, in eareas. There are
also cooperative banks which perform the functions of ordinary commercial banks but
give loans to their members only.
6. Saving Banks: saving banks help promote small savings and mobilize them, They
have been very successful in Japan and Germany. In India, post offices acts saving
Banks.
7. Central Bank:- The central Bank is the aper bank in a country which controls its
monitory and banking structure. It is owned by the government of the country and
operates in national interest. it regulates and issues currency, performs banking and

7
 operates in national interest, and agency service for the state, keeps cash reserves of
commercial and banks keeps and manager international currency act as the lender of
the last resort, act as charring house and controls credit.

2.4 Function of commercial Banks

Commercial banks perform quality of factions which can be divided as:
1. Accepting deposits
2. Advancing loan
3. credit creation
4. Financing foreign trade
5. Agency services and
6. Miscellaneous services to customers. This functions are discussed as follows;
1. Accepting Deposits: This is the oldest functions of a bank and the banker used to
change a commission for keeping the money in this custody when banking was
developing as an institutions. Now days a bank accept three kind of deposits from its
customers. The firsts the saving on which the bank plays small interest to the
depositors who are usually small services. The depositors are allowed to draw their
money by cheques up to a limited amount during a week or year. Business men keep
their deposits in credit in current deposits by cheques with out notices. Deposits are
also accepted by a bank in fixed deposits. The rate of interest with length of the time
period of the fixed deposits. But there is all ways the maximum limit of the interest
rate which can be paid. For instance, the interest rate on fixed deposit over five years
is 11% in India

2. Advancing loans: one of the primary functions of a commercial bank is to advance

loan to its customers. A bank leans a certain percentage of the cash lying in deposits
on a higher interest’s rate than its pays on such deposits. This is low it earns profits
and carries on its business. The bank advances loans in the following ways:
A. cash credit: the bank advances loans to business me against certain specialized
securities. The amount of the loans credited to the current account of the borrower. In
case of new customer a loan account for the sum is opened. The borrower can draw
money through cheques according to his requirement but pays interest on the full
amount

8
 B. Call loans: these are very short term loans advanced to the bill brokers for not more
than fifteen days. They are advanced against first class bill or such loan can be
recanted at a very short notice. In normal times they can also be renewed.
C. Over draft: A bank often permits a business man to draw cheques for a sum grater
than the balance lying in his current account. This is done by providing the over draft
facility up to a specific amount to the business man.
D. Discounting bills of exchange; if a creditor holding a bill of exchange wants money
immediately, the bank provides him the money by discounting the bill of exchange. It
deposit the amount of the bill in the current account of the bill holder after deducting
its rate of interest for the period of the loan which is not more than to days
3. Credit creation: credit creation is the most important functions of the commercial banks.
Like other finical institutions, they aim at earning profits. for this purpose, they accept
deposits and advance loans by keeping as well as cash but allows him to draw the money by
chute a cording to his needs by racing by racing loans, the bank creates credit or deposit.
4. Financing foreign trade: a commercial bank finance foreign trade of these customers by
accepting foreign bill of exchange and collecting term from foreign banks. It also transacts
other foreign exchange business and buys and sell foreign currency.

4. Agency service: A bank act as an agent of its customers in collecting and paying
cheques, bill of exchange, drafts and it also buy and sells shares securities, defends for
its customers. Further, it pay subscription, insurance premier, rent, electric and water
bills And other similar changes on behalf of its clients. It also act as at rusted and
executor of the property and will of its customers, more over, the bank acts as an
income tax consultant to its clients. For some of this service, the bank charge renders
other fee of charges.
5. Miscellaneous service: - Besides the above noted services, the commercial bank
performs a number of other services. it acts as a custodian of the valuable of its
custmers by providing them lockers where they can keep their jeweler and valuable
documents. It issues various forms of credit instruments, such as cheques, drafts,
travelers cheques which facilitate to its clients.
2.5 payments systems and electronic banking
The major routing processing in day to day banking operations originates at the cash counter
or teller countries in the banks. Essentially, the idea behind the electronic payment system is
that one or activities related to the payment should be done with the help of computer.

9
 2.5.1 Automatic teller machine (ATM)
The growth of technology has changed the payment systems world over during past decades.
The introduction of ATMS has given facility to the bank customers for banking beyond the
banking hours. ATM is a device located on the banks premises to receive and deposes cash
around the clock. Payment of card bills and for transferring funds from one account to
another. A customer who wishes to vitalize the service of ATM will have access to it only
with an ATM card. The ATM card consist of personal identification number which’s knows
as only to the customer. A customer who wishes to transact through the ATM will have to
place the ATM card in the lobefin starting his operation and he will be able to transact his
business through interactive usual display. Their are two types of ATMS (1) Exterior ATMS
(2) Interior ATMS
Exterior ATMS are located in various place like shipping centers, air port, rail way stations
which or with of dories in facility- while the interior ATMS are located within the bank
premises- ATMS which are directly interactive with the banks computers are known as on
one ATMS and the others are known as office ATMS.
2.5.2 The intelligent auto teller and net wares management
Intelligent auto teller system are a special broad of Auto teller machines cable of thinking for
them selves that means they are test, improve less demand on your banking systems and serve
the costumers more like personal banker than less sophisticated auto teller system, intelligent
auto teller provides as superposed service even with out benefit of available communication
net work.
Benefit of intelligent auto teller:
- Customer satisfaction
- High availability
- On line and offline auto recovery
- Any time full banking service
- Low cost, shorter quest and less teller with ease of use
- Quick and early implementation

2.5.3 Electronic banking

With the introduction of computers in Indian banking and with the arrangements of automatic
teller machines, the services are provided across the banks customers; need not necessarily
visit the bank to do banking or remote banking facility. This type of banking is called

10
electronic banking and the concept is becoming popular with individuals as well as corporate
in India.

2.1 EMERICAL LITRATURE REVIEW

The study revealed that on proximity and convince customer preference banks that are near
their work place or homes bank located at point where vehicular movement is frequent.
Deposit of customer is preference safe with the bank in that has not been any frequent report
of is appropriate of fund or any report of robbery attack. Again the study revealed that the
king of occupation of person has influence has or her preference of bank. The bank staffs in
the perceived to have a good relationship with their customer staffs.who exhibit un banking
behavior is their personal and in born behavior from their home but not a norm of their
organization
According to Almossawi (2010) there are many factors that can affect the customer
preference of bank one of the factors is secure feeling. Mokihils (2009) points out that secure
feeling reflects the desire of banking with a stable bank and assurance of confidentiality when
making financial transaction. This implies that secure filling includes both the security at the
bank and the security of the bank. Gerard and Cunningham (2008) conducted a study in
Singapore that addresses the issue of how customer preference the bank to patronise. The
survey concludes that for customer to become loyal, banks should emphasis that they can
make the customer preference feel secure. The key focus of any marketing campaign should
be on making customer feel secure more particularly emphasizing the banks stability. Banks
should also try to build good brand image, as many customer prefer to have accounts in
prominent banks where security arrangement are good so that can be assured of the safety of
their money ( sharma and reo,2011)
Renman and Ahmed (2010) reveal that convenience is one of the most important variable
influencing customer choice among other factors namely customer service, online banking
facility and overall bank environment. Customer devote much emphasis on electronic service,
(ATM) which gives them quick and convenient access to the bank service (Mokiklis,2010).
The study conducted by Sherman and reo (2011) on bank selection criteria the bank
customer in concludes that convenience is an importance determination. Factors such as
parking facility, free deliver of demand, phone banking, and free home cash delivery suggest
that customer want convenience in banking and they want to save time. Almossawi (2010)
point out that proximate and service quality are important factors customer preference of
banks. This suggests that banks customer will prefer to ban bank of ATM facilities that are

11
close to the customer. Almossawi (2009) add that even though there are scheme which enable
ATM card holders to use ATM of any bank, they still need to visit the bank when necessary
to perform some service which can not be done through ATM. According to Mokhilis
(2010) service provision come second term of relative importance considered by female
customers when selecting their banks the importance of service provision is further evidence
by the study conducted by Gerrard and Cunningham (2009) on how customer preference on
bank.
Cicic, Brkic and Agic (2004) point out cost is another important determinant of bank
selection especially for university students. University students are non in came earners ,their
primary objective is to minimize costs that are associated with financial transaction. This
means that students will prefer service charge as the most drive factor. According to cicic
(2009) the most important bank preference determinant for the Bosnia and Herzegovinina
students falls with in financial benefits including, first of all service charge taking in to
account the low level of living standard and low average in came in Bosnia and
Herzegovinia. On the contrary Cicic (2009) point out the factor like close proximity to home
work, and price of the product are perceived to be the least important criteria on the
preference of banks.
According to Almossawi (2009) and Lenka, Sura and Mohopatra (2011) another important
determinant of bank preference is technology. Managers should realize that young people
enjoy dealing with advanced technical device such as ATM. This indicates that, in their bank
selection, the new generation of customers tend to put more emphasis on the factors which
give them quick and convenience access to the bank service, rather than factors related to
hospital, condition of the bank premises, and location of the bank. Almossawi (2007) notes
that the vast majority of young people prefer to use the bank, note only the speed and
convenience, but also for the mental structure of today young people who have been very
much involved with computer based activities. According to Karate pea, yavas and Babakus
(2008) and Rao and sharman (2010) total customer preference in accurately achieved when
the management search and identify exactly what customers want. To attract the preference
are the future customer is of the banks, banks had to set up some kind of ATM, phone
banking, internet banking, and computation. In turn, banks have to understanding the
customer needs so as to take care of its customer satisfaction. Gerrard and Cunningham
(2009) and Kaynak and Harcas (2008) contend that electronic service are of relatively
importance. Even thought they were not available for that long, the current well educated

12
generation has been expose to modern technology in their higher education which will
increased their drive to patronise banks that are regarded as technology leader.
Cicic (2009) and Maddern, maull and smart (2007) point out that incompotence and lack of
courtesy of banks personal are major reason customer exit banks. The study reveals that
customer highly regard knowledgeable and competence personnel coupled with good relation
and values to the most important criteria in bank preference.
Almossawi (2009) and Haqque Osman and Ismael (2010) add the customer prefer to deal
with popular and reputable banks. This implies that banks can attract the customer preference
by engaging in various public relation and marketing activities that would give total
recognition by the customer preference of bank. According to Mokhils (2009), people
influence and recommendation is also among the important factors In bank customer
preference for both male and female customers. Almossawi (2009) find that recommendation
for a good relation and recommendation of relatives are of relevance despite the factor
customer preference to act independently in contract, Gerrard and Cunningham (200 ) find
that the third part influence are of little importance in customer preference of bank.

CHAPTER THREE
3 Methodology
3. 1 Research design
The type of research that researcher was use in this study is descriptive type of research.
Because, attempt to describe the phenomena and the problem that exist in the city. That
describe the assessment of factors that affects customer preference among bank in case of
dire dawa city

3.2 Target population

The Target population of the study was the customers of 5 banks which are operated in Dire
Dawa city .i.e. Abyssinia bank, Awash international bank, Dashen bank, Commercial bank
of Ethiopia and wegagen bank. In Dire Dawa city, other banks are also found but since some
of them are recently opened branches and others are sub-branches of the above bank, so they
are not include in the target population. Thus, the target population is the customers of the
above mentioned five banks. Total customer 98893.The total customers from each bank can
be shown as follows.

13
Table 3.1 The No of customers from each bank and the proposal sample.
Name of Banks No of No of Sample
customers
Abyssinia bank 14770 15
Awash bank 23915 24
Commercial bank of Ethiopia 31496 32
Dashen bank 21212 21
Wegagen bank 7500 8
Total 98893 100
Source: from each bank through personal communication

3.3 Sampling Technique

The sampling technique is used stratified sampling method. Because the population under
study area are Heterogeneous. For this reason stratified sampling method make Homogenous
by dividing in to different strata in order to present true population.

3.4 Sample size

Use of sample can save time and money (Economical) and to obtain detail information and
structure of population. The researcher take sample size 100 customer will be take by using
following formula of proportional

To determine
N
n= 2 where n-sample
1+ N (e )

N-Total population
e- error
N=N1+N2+N3+N4+N5
N 98893
N1-Abysinya=14770 n= 2 = =99.89̴̴̴̴ ≈ 100
1+ N (e ) 1+ 98893∗0.01
N2-Awash=23915
N3-C.B.E=31496
N4-Dashen=21212

14
 N5-Wogagen=7500
After determine the total sample size, it is distribute in to the five selected banks. In order to
know the sample size of each bank we can use the proportional and sampling technique

14770∗100 21212∗100
n1= 98893
=15 n 4= 98893
=21

23915∗100 7500∗100
n2= 98893 =
24 n5= 98893 =8

31496∗100
n3= 98893
=32

total sample = 100 customers

3.5 Source of data
While conducting this study, both primary source and secondary data was used. The primary
source of data was collected from in individual, business men, and other customers of bank.
And the secondary data are documents, internet and other researches.
3.6 method of Data collection
The data had been collected from customers by the researcher using questionnaires method of
data collection involves both unstructured and structured questionnaires had been prepared.
Regarding those customers who cannot read and write an interview was the appropriate
method. And the secondary data had been collected from different published materials and
documents of the banks.

3.7 Data processing and Analysis

After all the necessary data was collected, data processing and data analysis have been
carried out. Data processing to make the raw data suitable for analysis and classification were
made. Finally, the raw data were organize in groups on the basis of common characteristics.
Descriptive analysis method of data was used because the collected data is more of
qualitative type . In order to interpret the data the researcher had use tables, graphs,
percentage and charts.

15
 CHAPTER FOUR

4. Data Analysis, Interpretation and presentation

The study was conducted on the customer preference of banks in dire dawa city . In these
study 100 customers were taken as a sample. From these sample customer only 70 of them
have returned questionnaires. So the sample size becomes 70 customers.

4.1 Demographic characteristics of sample respondents

Table 1 Demographic characteristic
1. Age interval Items No of responds Percentage
18-35 38 54.3%
36-49 22 31.4%
Above 50 10 14.3%
Total 70 100%
2.sex Male 48 68.6%
Female 22 31.4%
Total 70 100%
3. Educational Status Illiterate 10 14.4%
Grade 1-8 8 11.2%
Grade 9-12 12 17.1%
Diploma 18 25.8%
Degree and above 22 31.5%
Total 70 100%
4. Religion Orthodox 33 47.1%
Muslim 20 28.6%
Protestant 12 17.1%
Catholic 5 7.1%
Total 70 100%
5.Job Business man 32 45.7%
Employee 27 38.6%
Other 11 15.7%
Total 70 100%

Source: Complied from questionnaire

As summarized in the above table, most of the sample customers are between the age
intervals of 18-35, which constitutes 54.3% of the total sample customers. In addition out of
the total sample customers, 31.4% of the samples are between the age intervals of 36-49. and

16
the age group of above 50 has the least share from the total sample customers, which
constitutes 14.3%.

As per the above table, most of the sample customers are male, which is 68.6% and the
remaining 31.4% of the total sample are female.
As the above table states that most of the total sample customers are degree and above which
constitutes 31.5% and 25.5% of the total sample customer are between grade diploma
followed by grade 9-12 having the share of 14.4%, and 7.5% of the total sample customers
are illiterate and the remaining 11.2% of the sample are between grades 1-8.

As indicated in the above table, 47.1% of the sample customers are orthodox which uses bank
and they are customers of the bank. In addition 28.6% of the sample customer are Muslim
which is less as compared to orthodox because paying interest have no acceptance in their
religion and accepting deepest with out interest is not developed in the bank. In addition,
protestant 17.1% and other catholic 7.1% constitutes the least of all .

As the above tables show that, most of the sample customer’s are business man which is
45.7% of followed by employees which shares 38.6% of the sample and the remaining
15.5% of the sample customers are students and other self work.

4.2 Knowledge of customers for the service that are given by the bank

Figuer 1 customers Konowledge

27%
customers those do not
have knowledge for
banking services
customers those have
knowledge for banking
services
73%

17
 Fig.1 Source: compiled from questionnaire
While preferring bank, the customers’ knowledge for the service given by the bank is the
main factors. As the main focus of this study is concerning on the preference of banks. All
the respondents are users of bank.

The above pie chart show that, 73%(51) of the total sample customers have knowledge about
the services given by the bank and they know why and for what purpose they used the bank.
Where as the remaining 27%(19) of the sample customers hav’t knowledge for the service
given by the bank
4.3 Types of services given by the bank to the customers

figuer2 Service given to the customers.

40

30
27
24

20
34.3% 13
37.1%
10
18.6% 7

10%
5

0 Service
Saving Checking Transfer lone and advance
Source comppiled from questionnaire

Note that the customers uses one or more bank services, for this reason, the total number of
respondent exceeds the total sample of the customer in the questionnaire

As the above figure states that most of the sample customers are users of checking account
service which constitutes 37.1% and followed by saving account which share 34.3% of the
total customers. Where as 18.6% of the total sample customers constitutes by local transfer
services. The remaining 10% are constitutes by loan and advance.

4.4 Customer preference of bank for the services given

Table 2 preference of bank for saving account.

18
Service type Bank No of respondent Percentage
Saving account Abyssinia bank 4 16.7%
Awash bank 5 20.83%
Commercial bank of Ethiopia 6 25%
Dashen bank 7 29.17%
wegagen bank 2 8.3%
Total 24 100%

Source: compiled from questionnaire

If the customers need a simple way to start saving for a short term needs like a day fund this
is a great account. They will earn a competitive rate and still have easy access to their money
when they need. The above table reveals the preference of bank for saving account by the
customers % 29.17 of them have responded that users of dashen bank. Where the commercial
bank has secondly prefer of the customer by 25% and 20.83. the total customer of the sample
customers are users of saving account in abbysinia 16.7 bank. the remaining 8.3% of the
sample customers are users of wegagen bank.

Table 3 preference of bank for checking account

Service type Bank No of respondent Percentage
Checking Abbysinia bank 2 7.4%
account
Awash bank 8 29.7%
Commercial bank of Ethiopia 12 44.4%
Dashen bank 3 11.1%
Wegagen bank 2 7.4%
Total 27 100%

Source: compiled from questionnaire

Checking account uses for safe method of transferring payment and to reduce risk of losing
money and theft. this type of service is mainly designed to fulfill the methods of those
customers who are not willing to collect interest.

19
As the above table commercial bank of Ethiopia is the most selected by the customers in case
of checking account. Followed by awash international bank which share 44.4% and 29.7%
from the total sample customers respectively. In addition dashen bank share 11.1% of the
total sample customers. where as of the total sample customers are users of checking account
in abbysinia bank and wegagen bank The remaining 7.4% of the total sample customers are
users of checking account in the same two bank.

Table 4 preference of bank for loan and advance services

Service type Bank No of respondent Percentage
Loan service Abbysinia bank 1 14.3%
Awash bank 1 14.3%
Commercial bank of Ethiopia 2 28.6%
Dashen bank 2 28.6%
Wegagen bank 1 14.3%
Total 7 100%

Source: compiled from questionnaire

Loan can be granted in three forms, based on maturity period.

i.e. short term:- is alone that has a maturity period of less than one year

- medium term:- is alone that has a maturity period exceeding one year but less than or
equal to five years from the date loan contract is signed.
- Long term loan: is alone which has a maturity period of above five years.(modern
money & Banking Ripper Leroy miller & David D.van Hoose, 3rd Edition)

The above table shows that 28.6% of the total sample customers are users of the loan and
advance in commercial bank of Ethiopia and Dashen bank. These indicates that commercial
bank of Ethiopia and Dashen bank is the most preferable for the loan service, followed by the
same Abbysinia,Awash international bank and wegagen banks The remaining bank which
each 3 banks shares 14.3% of the total sample customers, are uses loan service.

Table:5 preference of bank for transfer service

Service type Bank No of respondent Percentage

20
Transfer Service Abyssinia bank 2 15.4%
Awash bank 2 15.4%
Commercial bank of Ethiopia 5 38.5%
Dashen bank 3 23%
wegagen bank 1 7.7%
Total 13 100%

Source: - compiled from questionnaire

Transfer is the process of sending money from one place to other place and it reduces the risk
of losing money. There are different types of local transfer services. These are telegraphic
transfer, mail transfer . Demand draft and cashier payment order.
(Denton. 1989)

As indicated in the above table the customers of Commercial bank of Ethiopia constitutes
38.5% of the total sample customers for transfer service. which is also the followed the
dashen bank of by sharing 23% of the total sample customers. In addition from the total.
Sample customers Abbysinia bank and Awash international bank each constitutes 15.4%.
And the reaming 7.7% of the total sample customers are users of transfer service in wegagen
bank.

4.5 Factors Affecting Bank preference

Table: 6 Factors of bank preferences.
Factors No of Percentage
respondents
Customer service 18 26.09%
Proximity 9 13.04%
Banking technology or speed of 23 33.33%
activity
Low interest rate for deposits 15 21.74%
Other 4 5.80%
Total 69 100%

Source compiled from questionnaire

21
Note that one person might be give more than one reasons of factors that bank preference. As
stated in the objective part, the general objective of this study is to identify those factors that
affect customers preference among the selected banks existing in dire dawa city and those
which are listed in the above are the main factors. Lets see. One by one how they affect
customers.
Speed of activity
-this means satisfying customers with in short period of time. This factor is significant mostly
in the transfer service. In connection to this 23 or 33.33% of the sample would consider speed
of activity as abase for selecting the bank. There for speed of activity is the main factor for
bank preference in in dire dawa customers.

Good customer service

Providing better service for customer satisfaction is another factor to customers in selecting
the bank. If the products or services performance falls short of expectations, the borrower or
users dissatisfied. ( kotler 1987) customer satisfaction is also another reason in selection of
bank as customers of dire dawa city said.

From the total sample customers 26.09% were choiced the bank based on satisfaction get
from the bank.

Low interest rate

This is a practice which done by the banks to the customers. Interest rate to the customer is a
factory to select bank. From the sample customers 21.74% would consider low interest rate is
a factor to selection a bank

Other factor (accessibility)

It is some what similar with proximity but this is determined by number of branches in one
area. Accessibility is finding a bank as you want in all areas. From the total sample customers
it constitutes 5.80%

22
 4.6 suggestions of Respondents for improving the service given by the bank
The respondents mentioned different suggestion in order to improve bank services. the most
important suggestions are
- Widen the no of branches’
- Increase the span of service
- Use modern service
- Create strong relationship with customers
- Giving education to customers how bank is useful to them.

Chapter five
5. summary of finding, Conclusion and Recommendation
5.1 Summary of finding

Before concluding and suggesting recommendation, it is better to summarize the main

findings of the study.

The dire dawa city bank customers have moderate knowledge about bank, standing on the
responses given by the sample element. Even if the customers moderately aware about bank,
its importance and being influenced by different economic and religious problems, the
society have positive attitude to wards banking. There fore, knowledge is partial rather than
complete factors. Most of the customers of banks found in dire dawa city not properly used
their accounts. This may have a damaging effect for identification of real customer of the
bank and providing loans and advance. Providing consultancies during the opening account
period on services utilization will help the customers for proper usage of the service given by
the bank. But only few sample customers are given consultancy on service utilization.
There are many factors inflecting for the preference of bank. In this study in fulfillment the
following factors have its Owen draw back:-
A. Good customer service:- this providing better service to customers and trading well while
using the service.
B. Speed of activity: this is the time taken to perform an activity. The best bank is the one who
takes smaller time to perform the activity.

23
 C. Proximity (nearness):- means being nearer to the customer who use it. There fore, nearness
has its own role in preferring bank
D. Personal relation ship: is selecting a bank because of person relationship or social relation
ship rather than performance of the organization by the customer.
E. Low interest rate:- this is providing of loan for customers with in higher rate of interest.
F. Accessibility (convenient) in all areas: - this is finding in all area you want. There fore,
accessibility is abase for favorite of a bank.

5.2 Conclusions
After analyzing, discussing and summarizing all the data collected it is necessary to provide
conclusions based on the analysis made in chapter four,

Based on the findings achieved the customers, has its own strength and weakness on
preferring of bank exactly which one is best too them.
As this findings approves, all the sampled respondent of the customers are used bank and
some of the service such as; saving account, current account, loan services and transfer
services. The customers used bank for the advantage of safety security of their money, for
facilitating their business activity and for investment purpose.

Generally, the identified weakness and their consequents from the finding are:-
- Even though the customers have moderate knowledge about the service rendered by
the banks, still now they are not aware about the services other than saving, current
account, loan and transfer service
- The customers have not more information in relation to under take criteria for bank
selection
- Since the bank did not arrange and time contact with their customers and are not use
different types of announcements ( advertisements), the customer have not enough
knowledge and understandings
- Though, the banks rendered different types of service to the users the customers need
another services to be added on their organization
-

24
 5.3 Recommendation
Before recommending the findings, we have seen how data are collected, from where they are
collected, what are the result and how they are analyzed. But identifying the several facts and
actual practice and interpreting them is not enough and is not the last objective of the study.
so, depending on the above findings, the researcher would like to forwards the following
recommendation to the weakness identified for concerned party should be made.

These are:-
1. To enhance the knowledge and better understanding of the
customers, the bank should have some arrangements and contact
with their users by making smooth relation ship to know about the
services of bank.
2. The bank also try expanding their services especially using ATM
service and inter bank transfer service since it is better for customer
and the banks.
3. The customers have know about the banking service in detail and
they have exact criteria in selection a bank depending on facts
4. The banks should announce about their services to the customer and
the people should try to know the additional service
5. The customers should prefer the bank according to performance and
the technology the bank used.

25
REFERENCE

-Anderson, W.T,.Jr.,Cox,E.P and Fulcher,D. G.Bank (2005) selection decision and

market segmentation,journal of marketing, Edition vol.40
- DK.C shekhar and locksbimy ,1998,banking theory and practice, 19th Edition
- Frederic s.miskin, (2002),the economics, money and financial market 5th edition, vol.14
- Khazer M, kee F.(2005), how customers prefer banks Indian institute of banking and
finance, principle of banking. 8th vol. 13
- Laroche,M.,J.Rosenblatt and T.Manning,(2001) service used and factors considered
important in selecting a Bank; international journal of bank market 3th Edition vol.21
- Lioyd B.Thomas, 1997,money, Banking and financial market 12th Edition vol.2
- Maiyaki, A.A. (2002) determining banks selection and preference volume 6,2011
- M.L JHinpan, money, Banking,(1997) international trade and finance , 7th edition
- The oxford Dictionary for the business world, 1993
- The world book of encyclopedia,(1998) , volume 2, Edition 11th
- Phillip cotiller, 2003, marketing management customer service 9th edition , vol. 19

26
 Dire Dawa University
College of Business and Economics
Department of Banking and Finance.
The objective of this study is for the preparation of senior essay required for partial
fulfillment of B.A in banking and finance. The information supplied by you would play a
great role for the success of this study and kept in secret.
Am glad to extend my thanks for your cooperation in advantage.
- Use this “” mark for the answer you select
- No need of writing your name.
1. Age : A, 18-35 B. 36-49 C. Above 50
2. Sex : Male Female
3. Educational background
Illiterate Grade 1-8 9-12
Diploma degree Above degree
4. Religion
Orthodox Protestant Catholic
Muslim other, Specify
5. Types of job
Business man Employee Other, Specify __________
6. Do you know bank?
Yes No
6.1 if yes what it is? _______________________________________
7. Do you use bank?
Yes No
7.1 If No, why? _______________________________________________
_________________________________________________________________
7.2.1 If yes, what are the services provided by the bank to your activities

Checking account saving account transfer service

Loan Other, Specify___________________________

8. Which bank do you prefer for the services mentioned above?

Please, Specify_____________________________

27
 9. Why you prefer the bank you selected above?
Please Use this “” mark for the answer you select depending on the following alternative
1.very less important 2.less important 3. Important 4. Very important
1 2 3 4
1 The bank has good security
2 The employees deliver the service efficiency
3 The bank is very close to my place
4 The bank has ATM service
5 Mobile banking
6 The loan rate is lower than the other banks
7 The loan process is very short
8 My employer use the same bank
9 Service charge is lower than the other bank
10 The bank advertise its service in via mass media
11 The bank branches are to connected core banking system
12 Recommendations from my family or my friend
13 If the customer deposit there money, the bank gives an incentive

10. Are the services rendered by bank in your area sufficiently?

Yes No
10.1 If no what action must be taken in order to improve the quality and quantity of banking
Service?
___________________________________________________________________________
____________________________________________________
11. Do you have enough information about the service given by the bank
Yes No
11.1 If No, why?___________________________________________________
____________________________________________________________________
12. Do you think that there are other factors which can affect your bank preference?
a. Yes
b. No
if “yes” for the above question, please mention
them.______________________________________________________________________
_____________________________

28
29