Examining the Relationship between Customer Service, Efficiency and Financial Performance: an Application on the Egyptian Public Sector Banks

A sound, well-functioning banking system has an essential role in the economic development and sustained growth of any country. Egypt has faced two unexpected shocks; the global financial crisis at the end of 2008 and the recent 2011, January revolution. The Egyptian banking system in general and public banks in specific have shown resilience to the unexpected shocks in terms of solvency and liquidity. This study is important, examining the banking sector in an emerging Arab market that is rarely studied despite its growth potential and in a period of rapid political and economic changes.  It tends to investigate empirically the relationships between customer service, efficiency and financial performance in Egyptian public sector banks and to examine the strength of those relationships if they do exist. For  measuring efficiency, Data Envelopment Analysis model (under the constant returns to scale model) is used to calculate both technical and scale efficiency of the sampled public Egyptian banks using annual observations from 2008-2014. Then, for assessing the bank’s financial performance, four financial ratios that are commonly accepted and widely used in the banking industry were calculated for each of the seven years using data from the annual reports of each financial institution. Customers’ service quality is then assessed using the modified SERVQUAL model that consists of six critical dimensions; tangibility, reliability, responsiveness, assurance, empathy and convenience. Then the researchers used the linear programming and regression analysis techniques to examine the relationship between customer service, efficiency and banks’ financial performance. Our results partially supported the hypothesis. By developing knowledge about the way, customers perceive quality and if this affects banks' profits and if efficiency has a significant impact on this relationship, it will be possible for managers and decision makers to take concrete actions for continuous improvements. Additionally, they can identify the service areas that require improvement as a mean to retain customers, and eventually may improve banks' efficiency as well as financial performance.