ESPECIALLY PLEASED with the resurgent thrift industry, an increasingly demanding public gave financial institutions better grades this year for service quality.

In the American Banker's annual consumer survey, 61% of respondents were "very satisfied" with the overall performance of their principal financial institutions. The rating, up by two percentage points since 1992, is average for the 10 years of the survey but well below the 66% peaks in 1988 and 1991.

The trend is doubly favorable in that there was a parallel improvement in consumers' assessment of the overall health of the financial industry. Usually, customers' satisfaction with their primary banks, thrifts, or credit unions changes without regard to their "macro" opinions. (See page 15A.)

One factor this year may have been adjustment to the historically low interest rates. In 1992, there was much more vocal consumer dissatisfaction with the yields on deposits and with a perceived lack of competitiveness in loan rates.

Those complaints, and others about service declining after financial institutions merge, have adversely affected general satisfaction, as measured by the percentage "very satisfied." (Another 34% this year were "somewhat satisfied" and 5% were unsatisfied or gave no answer -- levels that hold fairly constant from year to year.)

But the overriding reason for the improvement was the thrifts' recovery from the crisis of the late 1980s, and their return to customers' good graces.

For the first time since 1989, savings institutions had a higher percentage of "very satisfied" customers than commercial banks. Thrifts also showed considerable improvement in some service components, such as efficiency and staff quality.

Other depositories slipped a bit in overall satisfaction -- banks by a statistically minor one point to 56%, credit unions by a slightly more meaningful three points to 74%.

Over two consecutive years of declines, the drops appear more significant: In 1991, credit unions were at 78%, banks at 65%. And credit unions suffered setbacks in some of the components where thrifts gained, such as staff courtesy and speed of loan decisions.

To be sure, credit unions remain the customer-service champions and have pulled even with thrifts in an important market-share measure -- "principal relationship" households. (See page 10A.) But thrifts' satisfaction index rose by seven percentage points, to within 10 of credit unions.

The findings from the American Banker survey, conducted by the Gallup Organization in April and May, confirm assertions by the Office of Thrift Supervision and other observers that the shrunken industry is healthy and poised to compete in the retail arena.

Indeed, the approximately 1,900 surviving institutions -- from almost 4,000 in the mid-1980s -- are restoring thrifts' reputation for being friendlier and less impersonal than the typical commercial bank.

"What's left is the cream of the crop and I would expect satisfaction to be high," said Wendell Sebastian, president of GTE Federal Credit Union in Tampa, Fla., who finds thrift competition increasingly formidable.

"The institutions left are the ones that give and have given good service; the ones that didn't treat customers right aren't around anymore."

"Five years ago a lot of [thrift] people would have deferred putting in automated teller machines or adding drive-up windows," said Robert Duncan, president of $1 billion-asset Magnolia Federal Bank for Savings, Hattiesburg, Miss. "But now profitability is such that we can spend money to give better service."

At banks, thrifts, and credit unions alike, improved profits have led to investments in products and marketing, areas given short shrift in the lean years, said George Morvis, chief executive of Financial Shares Corp., a Chicago-based consultancy.

He said gains have been especially noticeable in market research and the resulting responsiveness to competition and customers' needs. Therefore, service quality, in aggregate, has improved.

"You have to realize that we started from zero in measuring and documenting customer satisfaction," Mr. Morvis said. "Since the industry came out of nowhere, I give it a |B.'

"A lot of people are trying," he added. "Some are better than others, doing training programs and hiring more people who are bright and have sales attributes.

"A couple of years ago, when losses were high, marketing and customer retention issues suffered. Customer retention will be critical as we go forward, and these efforts shouldn't suffer so much because of external impacts."

Seattle-First National Bank, one of many that rigorously track customer satisfaction, has adopted retailing terminology. The BankAmerica Corp. affiliate calls its 275 branches "stores," has 37 in supermarkets operating seven days a week, and tries to survey each customer once a year, said Jack David, executive vice president of marketing.

"Advertising and marketing attracts customers, but the quality of service must be outstanding or we lose them," he said.

Seafirst sets high standards because its market includes pacesetters in customer service such as the Nordstrom department stores and Alaska Airlines.

"We want to be judged better than they are," Mr. David said. "We are doing much better than a few years ago, but still not outperforming the all-stars. On a one to 10 scale, most of our stores are at nine, and they started at six or seven a few years ago."

He said the industry, as a whole, "is definitely improving."

Mr. Morvis said it is useful for a bank to look how it might match up against a Nordstrom, "but you have to realize there are differences in the commodity. People tend to get more emotional when talking about money and what bankers do with it."

The public does seem generally more satisfied with financial institutions than with other types of service providers. The American Banker/Gallup survey asked respondents to compare their principal institution's service quality with that of 10 other entities.

In all 10 comparisons, more people said their principal financial institutions were better than said they were worse. Majorities rated the financial industry superior in eight.

For example, 74% said their principal institution was better than their motor vehicle authority. Only 6% found those state agencies -- notorious for bureaucracy and delays -- as superior. The difference between these percentages -- 68 -- is the index shown in the graph accompanying this article. It suggests that banks, thrifts, and credit unions improved -- relative to motor vehicle bureaus -- since 1988, when we asked the same question.

Majorities ranging from 52% to 64% put financial institutions ahead of airlines, telephone companies, supermarkets, post offices, gas stations, department stores, and fast food restaurants.

Depository institutions have more room for improvement relative to hotels and sit-down restaurants, which is understandable given their close customer contact.

With commercial banks getting lower overall satisfaction ratings than thrifts and credit unions, it's not surprising that bank customers were more critical than average in the cross-industry comparisons.

The banks failed to win majority approval against four industries -- airlines (49% said banks were better), telephone (48%), sit-down restaurants (46%), and hotels (42%). Among all, in the survey, 52% said their primary institutions were better than airlines, 53% said the same about telephone companies, 48% about sit-down restaurants, and 44% about hotels.

Among all 967 people in the survey who named a bank, thrift, or credit union as principal institution, 58% rated it excellent for friendliness and courtesy of staff. This was the best of nine satisfaction factors, but was down from 61% last year. Thrifts improved by two points, to 63%, but banks fell by five to 56%, and credit unions by seven, to 62%.

Other areas in which credit unions lost substantial ground included problem-solving, where "excellent" ratings fell this year to 45% from 53%; staff knowledge and professionalism, to 44% from 53%; competitive service charges, to 44% from 55%; and competitive loan rates, to 39% from 48%.

Still, credit unions remain ahead of banks in all categories and significantly trail thrifts in just one -- staff knowledge and professionalism (44% to 47%).

Credit unions have their biggest advantage in areas relating to fees and interest rates. Despite the growing dissatisfaction with their loan rates, credit unions are rated excellent by 39% -- compared with 18% for banks and 17% for thrifts.

In deposit rates, credit unions were rated excellent by 31%, about the same as 1992's 32%, while thrifts improved to 23% from 17% and banks slipped to 15% from 16%.

And 32% of the credit union loyalists in the survey said their service quality improved over the past year, compared with 16% among thrift depositors and 22% among bank customers.

The thrifts' newfound strength was reflected in the nine-percentage-point gap between those saying service improved, and those saying it worsened. The margin was only three points last year.

Banks widened their differential to 13 points from nine, while credit unions' narrowed to a still impressive 29 from 32.

Mr. David of Seafirst suggested that a low-price strategy will go only so far in attracting and keeping customers, and that staff quality is becoming an increasingly important factor.

"Until 1987, if you asked why a customer chose a bank, the first answer would always be convenience, followed by price concerns, and then customer service, friendliness, innovation, and the like," he said. "Suddenly, customer service flipped to the top, and it wasn't an aberration. Quality became established as a standard, and that resulted in a higher degree of attentiveness to customer needs across the board."

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