CHAPTER the establishment of commercial bank, definition

CHAPTER TWO2. LITERATUREREVIEWInthis chapter will present an overview of related literature to the researchproblem Presented in the previous chapter. It includes that the establishmentof commercial bank, definition and characteristics service, service quality,customer satisfaction, relation between customer satisfaction and servicequality and service quality model is included in order to give a clear ideaabout the research area.

2.1.Establishment of Commercial Bank of Ethiopia Commercial Bank of Ethiopiawas incorporated as a share company on December 16, 1963 per proclamationnumber 207-1955 to take over the commercial banking activities of the formerstate Bank of Ethiopia.

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Under this name, it began operation on January 1, 1964,with a capital of Ethiopian Birr 20,000,000 and served for about 16 years. Thebank was wholly owned by the state and operated as an autonomous institutionunder the commercial code of Ethiopia under the socialist regime in Ethiopia(1974-1991). The Commercial Bank ofEthiopia Share Company and Addis Bank had identical objectives power andduties. Hence, the socialist regime saw it necessary to merge them in order toeliminate the duplication of efforts and bring them under a centralized bankingstructure; consequently, the present day commercial Bank of Ethiopia wasestablished under proclamation No.184 of Augest2,1980 (Belay, 1987).

2.2. ServicesRendered by Commercial Bank of Ethiopia Commercial Bank of Ethiopia provides three major services whichcomprises of Domestic banking service, International banking service andrecently E-payment services. Domestic banking services consist of Deposit,Credit and Local transfer service, International banking services consists ofTrade service, Foreign service and International money transfer using differentmoney transfer agencies and E-payment service also includes Internet BankingService, ATM, POS Card Banking and Mobile Banking Service (www.cbe.com).

2.3. Definitionof serviceAccording to PhilipKotler, Veronica Wong, John Saunders and Gary Armstrong (2005) service can be defined as any intangible activity or benefit that can be offered byone party to another which is does not result in the ownership of anything. Itmay be either tied with production or may not be tied to a physical product.Service can be defined as economic activities that produce time, place, form,or psychological utilities (Kotler and Armstrong, 2012). Kotler and Armstrong, (2012) state ontheir book principle of marketing, Services are growing faster in the worldeconomy and it making up 64 percent of the gross world product. Due to theService industries vary greatly, Governmentsand private organization which are profit oriented or nonprofit oriented offerservices.

According to Kotler and Armstrong, (2012)list out that some example of services offered by government like courts,employment services, hospitals, military services, police and fire departments,the postal service, and schools. Privatewhich are not-for-profit organizations offer services like museums,charities, churches, colleges, foundations, and hospitals. And a large numberof business (profit oriented)organizations offer services like airlines, banks, hotels, insurancecompanies, consulting firms, medical and legal practices, entertainment andtelecommunications companies, real-estate firms, retailers, and others.2.3.1. The Nature and Characteristics of a ServiceAccording to Kotler andArmstrong, (2012) there are four special service characteristics.

These areintangibility, inseparability, variability, and perishability of services.2.3.1.1. ServiceintangibilityService intangibility means that servicescannot be seen, tasted, felt, heard, or smelled before they are bought. 2.

3.1.2.Inseparability of serviceService inseparability means that servicesprovider and service doesn’t separate each other. The providers are eitherpeople or machines.

While employee (service provider) provide a service, itwill be becomes a part of the service. Because the customer is alsopresent as the service is produced, provider-customer interaction is a special feature ofservices marketing. Both the provider and the customer affect theservice outcome.

2.3.1.3.

Service variability or HeterogeneityService variability means that the qualityof services depends on who provides them as well as when, where, and how theyare provided. It is the degree of uniformity is varying in service delivery. This is aparticular problem for services with high labor involvement, as the serviceperformance is delivered by different people and the performance of people canvary from day to day and also from person to person.Heterogeneityof Services Besides, itoffers the opportunity to provide high degree of flexibility and customizationof the service and this can be used as a benefit and point of differentiation(Wolak et al.

, 1998).2.3.1.4. Perishability of ServicesPerish ability of Services means that servicescannot be stored and carried forward to a future time period and suggest thatservices are time dependent and time important which make them very perishable.The issue of perish ability is primarily the concern of the service producerand that the consumer only becomes aware of the issue when there isinsufficient supply and they have to wait for the service (Bitner et al.,1993).

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