Banks’ Lending Relationship Quality Index (LRQI) for the Small and Medium-sized Enterprises: A Review

Abstract

Stiff competition in the service industry like banking sector has forced banks to search for the best approach to create, attract and retain a segment of satisfied customers. Relationship marketing is a comprehensive strategy used by many service providers to maintain an on-going long-term relationship with their existing customers. A good implementation of relationship marketing activities is evident from good relationship quality built between the customer and the service provider. Due to the above needs, development of a new measuring instrument (Lending Relationship Quality Index (LRQI) to assess the quality of lending relationship between the banks and their SME borrowings’ customers, a nationwide survey is proposed to identify factors presumed to influence the quality of lending relationship from SME borrowings’ customers perspective A sample size of 2,000 will be drawn from the SME customers having lending relationship with domestic commercial banks. The sampling procedures to be used for this study will be Convenient Sampling. The items in the questionnaire will be measured on a five-point Likert-type scale. Previous researches had focused on assessing relationship quality between the banks and their customers but have neglected to determine the quality of relationship in the context of lending between the banks and their SME borrowings’ customers. The new measuring instrument will be empirically tested for multi-dimensionality, reliability and validity by using both exploratory and confirmatory factor analysis. The findings from this study will add value to the existing literatures on relationship quality by linking the proposed seven factors of lending relationship quality namely, trust, communication quality of relationship, amount of information sharing, long-term relationship orientation, satisfaction with the relationship, closeness and commitment as the independent variables to the dependent variables which consist of lending relationship quality and how it relates to satisfaction and retention.