Statement of the Problem

Service quality is one of the critical factors that influence the competitiveness of an
organization and also key to long-term business success (Zeithaml, et al., 1996). Particularly,
service quality is essential in the banking services context because it provides high level of
customer satisfaction, and hence it becomes a key to competitive advantage (Ahmossawi,
2001). In the financial service sector, particularly banks compete in the marketplace with
generally undifferentiated products; therefore service quality becomes a primary competitive
weapon (Stafford, 1996).The banking industry is highly competitive; banks do not only compete
among each other; but also with non-banks and other financial institutions both local and
foreign (Kaynak and Kucukemiroglu, 1992). Now a day in Ethiopia, financial institutions like
microfinance institutions would snatch a high portion of market from the banking sector as
they are aggressively mobilizing deposits from the public at large. Thus, banks need to
differentiate themselves from competitors merely by providing high quality service and having
good relationship with customers than their competitors in more effective and efficient
manner. Otherwise, any bank that fails to surpass customer expectations and meet customer
satisfaction will not be able to compete with other banks. Meanwhile, banks operating in
Ethiopia are consequently put into lot of pressures due towards increase in competition.
Especially it’s challenging for the newly opened private banks since they have the floor
market share of the banking sector