Focusing on Complaints Handling for Customer Satisfaction and Loyalty: The Case of Indonesian Public Banking

The purpose of this study is to examine and explain the effect of customer complaints handling and the quality of bank services on customer loyalty to public sector banks owned by the government in Jakarta, Indonesia. These banks have been the subject of several complaints to the Indonesian Consumer Foundation and the Financial Services Authority.The variables in this study are the quality of bank service (6 indicators), the handling of customer complaints (4 indicators), the customer loyalty (3 indicators) and the customer satisfaction (5 indicators). A total of 275 respondents from four state-owned commercial banks have been used.The study presents a proposed conceptual model, which is a key determinant of customer loyalty. The results show that the quality of the service has a positive effect on satisfaction, but the quality of service does not affect customer loyalty. Customer complaints have a positive effect on satisfaction, but the handling of customer complaints has no effect on customer loyalty. The customer satisfaction has a positive effect on customer loyalty. The result of mediation path hypothesis testing shows that the influence of service quality on customer loyalty can be mediated by customer satisfaction showing positive relationship. The influence of complaints on customer loyalty can be mediated by customer satisfaction showing a positive relationship also.Complaint handling has the greatest coefficient value in creating customer satisfaction and impacting customer loyalty. The study develops a framework for further research with more variables and indicators.