Abstract

The emergence of new forms of banking channels such as Internet banking, Automated Teller Machines (ATM),
phone banking and also maturing financial market and global competition have forced bankers to explore the
importance of customer loyalty. Therefore, studies need to focus on the changing role of the banking system and
its dynamic financial market. The underlying model of SERVQUAL (Parasuraman et al., 1988) with five
dimensions was used by this research to evaluate the impact of service quality on customer loyalty among bank
customers in Penang, Malaysia with customer satisfaction mediating these variables. The findings show that
improvement in service quality can enhance customer loyalty. The service quality dimensions that play a
significant role in this equation are reliability, empathy, and assurance. The findings indicate that the overall
respondents evaluate the bank positively, but still there are rooms for improvements.

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