WACHEMO UNIVERSITY

ENGINEERING AND TECHNOLOGY COLLEGE

DEPARTMENT OF GEOMATICS
ENGINEERING

Developing Optimal Location for New Bank Branch Using Geospatial

Technology for Commercial Bank. Case study of Hosanna Town

BY
PRINCIPAL RESEARCHER:-ASTER CHALCHISA

CO-RESEARCHER:-TARIKU KEBEDE

SEPTEMBER, 2022,

HOSSANA

ETHIPIA

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Table of Contents
LIST OF FIGURE.......................................................................................................................................iii
LIST OF TABLES......................................................................................................................................iii
PROPOSAL SUMMARY..............................................................................................................................iv
CHAPTER ONE..........................................................................................................................................1
INTRODUCTION........................................................................................................................................1
1.1 Background of Study....................................................................................................................1
1.2 Problem statement............................................................................................................................2
1.3 objectives............................................................................................................................................3
1.3.1 Generally Objectives...................................................................................................................3
1.3.2 Specific Objectives......................................................................................................................3
1.4 Research question.........................................................................................................................3
1.5 Significance of study...........................................................................................................................3
1.6 Scope of study....................................................................................................................................4
CHAPTER TWO.........................................................................................................................................5
LITERATURE REVIEW.............................................................................................................................5
2.1 introduction........................................................................................................................................5
CHAPTER THREE......................................................................................................................................7
MATERIALS AND METHODS.................................................................................................................7
3.1 Description of study Area...................................................................................................................7
3.1.1 Geographical location of study area.............................................................................................7
3.1.2 Population....................................................................................................................................7
3.2 Data Source and Material to be used..................................................................................................8
3.3 Methods..............................................................................................................................................9
3.3.1 Data collection methods..............................................................................................................9
3.3.2 Data analysis method...................................................................................................................9
4. PROJECT IMPLEMENTATION SCHEDULE.....................................................................................13
4.1. Work Plan........................................................................................................................................13
5. Budget................................................................................................................................................14

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 LIST OF FIGURE
Figure 3.1: Geographical Location of Study Area.......................................................................................7
Figure 3.2: methodologically work flow........................................................Error! Bookmark not defined.

LIST OF TABLES
Table 3.1: Data source..................................................................................................................................8
Table 3.2: Materials to be used for research work........................................................................................9
Table 4.1 Work Plan...................................................................................................................................13
Table 5.1: Budget Estimation for study......................................................................................................14

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 PROPOSAL SUMMARY

Locating bank in proper location in cities is a challenging task, and the optimal spatial
arrangement of bank location is critical to satisfy the customer. The process of bank location site
selection is always traditionally based on the experience of a few people in some special
organizations or with regard to available facilities in cities. The results of the GIS application
become the inputs of the mathematical model that give the opportunity to combine the techniques
of operational research and Combining more than one discipline increases the problem solving
ability. Hosanna is one of town in Ethiopia having large number of population that increase from
time to time and need increasing the number of bank branches in the cities. Consequently, the
aim of this study will be to propose optimal location for new bank branches using geospatial
techniques. The criteria that will be used based on available data and literature review. Those
are distance to main road, distance to service area, slope, population density, travel time.
Healthy center, government office, existing bus station, Business center layer, hotel and tourist
center will be used .Combination of AHP (analytical hierarchy process) and GIS will be adopted
to execute the research projects .Expected outcome of this research will be the proposed optimal
location for the new bank branches.

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 CHAPTER ONE

INTRODUCTION

1.1 Background of Study

Selecting an appropriate location is considered as an important decision since poor site selection
would be costly and hard to reverse (Karimi, Bashiri, and Nickel 2016). Inappropriate choice of a
site location would lead to higher transportation costs and loss of qualified labor. The aim for
finding an appropriate site is to select the best location that meets the predetermined selection
criteria (Allahi et al. 2015)). Bank branch optimal location is one of the most significant strategic
issues in the competitive market especially for private banks because of the global competition
and high customer expectations. Nowadays, service organizations have significant effects on the
countries’ economic development. Regarding the importance of financial activities, banking
industry as a service industry, holds a great potential in business development. Banks help to
maintain the flow of cash in the economy by implementing the policies. Therefore, banks play a
significant role for the growth of economy. Also, banking industry is progressively developing to
move toward the path of privatization and to provide a competitive environment. The maximal
covering location problem (MCLP) deals with the problem of selecting an optimal location of a
number of existed facilities within a set of customers. Since each customer has a specific demand,
the facilities have to be located to cover demands of customers by the facilities (Ahmed and
Asmael 2015). Covering problems constitute the important family of facility location problems
with widespread applications. These problems embed a notion of coverage radius or proximity
(distance or travel time between points) that shows whether a given demand point can be served
or “covered” by a potential facility location ((Karimi, Bashiri, and Nickel 2016)). A demand
point is then said to be covered by a facility if it lies within the coverage radius of this facility (Sin
and Ho 2022) .To cover demand point, this model finds the maximum covered business
potentials subject to some constraints. Therefore, in early years, there are several studies for
extensive reviews to demonstrate various types of problems related to maximum coverage
location problem (MCLP) since it is one of the famous locating public service facilities to cover
the demand (Bansal, 2018). GIS is a vital location analytic method which is able to support map-

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based display along with geographic data creation, manipulation, and management. It helps to
provide functions for suitability evaluation. Site selection illustrates measuring the needs of a
proposed facility against the merits of potential locations (Budarova, Martynova, and Budarov
2018).To understand the effects of the various important factors, which have profound effects on
the locating places, the GIS mapping is very useful. The simplest GIS tools that can be used at
every GIS application are related to querying spatial, displaying, and attribute data. Therefore,
most studies use GIS software which should have at least six main modules that are known as
data input, data model, data storage, data manipulation, data analysis, and data output module.
For example, ArcGIS software, which is one of the most significant and useful software, is
designed to have these modules with various desktop applications known as Arc Cataloge,
ArcMap, Arc Globe, Arc Toolbox and Model Builder. Using these applications, users can
perform any GIS task, from simple to advanced, including mapping, geographical analysis, data
editing and completion, data management, visualization and geoprocessing (Murad, 2011 .Hence,
several studies have been considered for the location selection of banks based on different
methods such as Geographic Information Systems (GIS), Maximal overage Location problem
(MCLP) and Decision Support Systems (DSS). The current paper targets the problem of banking
sector in case of hosanna town.

1.2 Problem statement

Selecting the suitable site for urban as well as rural infrastructure is still challenging task due to
different socioeconomic factors. In addition to that socioeconomic problem also there is no clear
and efficient methods for selecting suitable site for those infrastructure and social service
likewise the selection of new bank location is challenging task due to it affect the cash flow for
country town and region. a new model based on the notion of complementary partial coverage
and exploit the capabilities of GIS in order to better represent demand(Pick 2004). The Hosanna
town is one of town in Ethiopia which lacks the available numbe of commercial bank for the
customer. Even though, the number of commercial bank branch in the town is large relatively
with other bank in the town, but the number of customer and available amount of branches is not
blanced.to satisfy the customer the new branches bank must be required.so that locating the new
branches location involves the number of variable that must be consider to locate the bank in
proper location. In Ethiopia there is no clear procedure for locating bank location. The method of

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locating bank is traditional that is not reliable and also time consuming. GIS and MCDM is the
best tools for optimal site location for school site ,industries ,hospitals and other infrastructure
(Allahi 2015).GIS is the most efficient technology that integrate the tools that simple integrate
large amount of parameters for optimal site location. However the use of GIS for new bank
branches in Ethiopia is not adopted.so, that these study aim to develop optimal site location for
new bank branches in case of hosanna town.

1.3 objectives
1.3.1 Generally Objectives
The generally objectives of this study is to develop optimal location for new bank branches in
using geospatial technology in case of hosanna town.

1.3.2 Specific Objectives

 To identify the major criteria for new bank branches location
 To propose the new bank branch location.
 To develop the optimal location for new bank branch from proposed location.

1.4 Research question

1. What is the major factor for locating new bank branches?

2. What method is recommended for locating the new bank branches?

3. How we develop optimal location for new bank branches?

1.5 Significance of study

Geographic information systems (GIS), it is possible to achieve efficient results in applications
based on spatial information. Since GIS can analyze intensive data volumes and is highly
effective in responding to spatial queries that can be used in the analysis data concerning urban
fires. Therefore this study finding is expected to have the following significances to city/ rural
Policy makers, designers, and stake holder through providing the following:

I. For designers to know geospatial tools environmental friendly tools for optimal site
selection for new bank location.
II. For urban planners/rural to know what social and environmentally factor should be
included for optimal site selection.

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III. For bank management and experts providing a scientific basis for selecting optimal
location for fire using new bank branch is effective by using geospatial to reduce risk of
fire emergencies. Increase customer satisfaction.
IV. For policy makers provide scientific based information to develop the strategic policy for
optimum site selection for new bank branches.
V. For study area beneficiaries reduce time consumed for getting service from the bank by
providing available bank to their respective residence.

1.6 Scope of study

This study is geographically bounded in the Ethiopia SNNP region in the Hadiya zone in hosanna
town. The content scope of this study will be developing the optimal site for new bank branches
in case of commercial bank. The optimal site will be selected by using geospatial tools. The
remote sensing data were used for the extraction of the different factors used for optimal site
selection. The GIS tools will be used to analysis, and mapping of thematic layers for factor
affect locating the new bank branches. AHP spatial multi-criteria evaluations will be used to
derive weight for the factor.

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 CHAPTER TWO

LITERATURE REVIEW

2.1 introduction
Recently, some studies in the banking community have focused on the potential applications of
location-allocation problems and models for finding the best bank-branch location and optimize
the allocation of demand to those locations. Here are several studies which discuss Solution
techniques for location-allocation models, and have been formulated these problems in
continuous and discrete space.

Therefore, the bank branch location studied by (Hammam, Abdisalaam, and Mohammed 2023)
indicated that costumers choose their banks based on their convenient way to reach the bank.
Since estimating the feasibility of a bank branches development project and plan, defining the
availability of the demand area is a first challenge (Sin and Ho 2022)

(Karimi, Bashiri, and Nickel 2016)) , Suggested the local branch density and depositors’ value
geographic reach. Location selection is considered as a significant matter for companies since it
would be a costly mistake that results in unnecessary relocating expenses, endeavor and
competitive advantages losses, especially when the decision problem depends on the locating
facilities (Sin and Ho 2022)On the other hand, the problem of deciding on the best site for a new
branch may be viewed as part of the general problem of restructuring the bank branch network
((Govorov and Bevainis 2016).

Thus, Finding the best site for branches of a new may be viewed as part of the general problem of
restructuring the bank branch network since it may influence by a need arises in the event of
changes in bank regulations, motivating mergers that necessitate a redesign of the branch network
(Nieminen 2002)

Banks, credit and financial institutions to attract more financial resources need to select suitable
locations for construction of their branches. Hence, the optimal location of banking facilities is a
critical decision since the investment of a banking facility is usually over millions of dollars. A
wrong decision of branch location may induce serious investment losses.

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 Geographical information systems (GIS) are used at several planning applications including
health care planning, land use planning, and transportation planning. Locating is considered
as one of the planning fields that could benefit from using this service technology. So, the
use of GIS in modeling demand flows to the location of important facility. It is also used to
show the interaction between location and the factors related to the specific area. The results
are influenced by the attractiveness of retail location, the size of demand, and the cost of
travel between location j and area (Yunus 2022).Therefore, GIS technology is appropriate for
a variety of usages including business planning, land surveying, and resource management.
For example, businesses use GIS technology to delivering better services; solve problems,
making good decisions, and find solutions for marketing.

In addition, GIS technology has been implemented in service management for displaying
large volumes of diverse data pertinent to various local and regional planning activities. In
addition, finding the best location faced considerable number of problems including sales,
constructing demographic, and competitive analysis. It also faced to create effective
marketing campaigns, schedule and route deliveries, and provide better customer care
information system(Hammam, Abdisalaam, and Mohammed 2023). Thus, extensive studies
have been reported associated with GIS based facility locations and covering location
problems (Karimi, Bashiri, and Nickel 2016)

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 CHAPTER THREE

MATERIALS AND METHODS

3.1 Description of study Area

3.1.1 Geographical location of study area
Hosanna town is located in Hadiya Zone in Southern Regional State and is found at distance of
230 km to the south of Addis Ababa. Astronomically, Hosanna located extending from 7 0
30'40''N-70 37'50'' N latitude and 370 47'40'E'-370 55'40''E longitude.

Figure 3.1: Geographical Location of Study Area

3.1.2 Population
Based on the 1994 national census reported this town had a total population of 31,701 of whom
15,593 were men and 16,108 were women. However, the latest report made by the city
population center, Hosanna has a total population of 89,300 in the year 2011.

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 3.2 Data Source and Material to be used

This study incorporates the assembly of both spatial and non-spatial data from actual fieldwork
and secondary data from different sources. Table 3.1 summarizes the types of data will be used in
the study, formats, and where the data has been gathered from.

Table 3.1: Data source

S/N data Source Data Type purpose

1. Population Town statics Numerical data To prepare the thematic layer for
density center population density
2. Health center municipality Shape file To prepare the health center thematic
layers layers
3. Governmental municipality Shape file To prepare the government office
office thematic layer
4. Town Bus municipality Shape file To prepare thematic layer for location
station layers of bus station
5. Existing bank municipality Shape file To prepare thematic layer for Existing
location. bank location.
6. Business center municipality Shape file To prepare thematic layer for Business
layers center
7. Hotel and municipality Shape file To prepare thematic layer for Hotel
tourism center and tourism
layers
8. Bus station municipality Shape file To prepare thematic layer for Bus
location center station location center

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Materials that will be used to conduct the research works are given under Table 3.2

Table 3.2: Materials to be used for research work

S.NO Description Purpose

1 ARCGIS 10.8 For the preparation of all thematic layer for the research
works

2 Handheld GPS To verify the proposed optimal site location

(accuracy 3 m)

3.3 Methods
3.3.1 Data collection methods
locating banks in optimal location needs obtaining reliable data on Population Characteristic
(Population density, Income level), cost (Cost of Purchase or rent branch’s build), urban facilities
accessibility (Hospital and medicine vicinity, Business center vicinity, Hotel and tourism center
vicinity, Office and company vicinity, Parking vicinity), transportation system (taxi/bus stop and
metro/mon rain vicinity, Main Way vicinity), and competition (competitor branch vicinity).

To achieve the objectives, the study will uses different primary and secondary data. The study
will use socioeconomic data and GPS field data as primary data. The secondary data, like a the
boundary of the study area, village and town map, healthy center map, office location map,
business center map , hotel and tourism center and others data that Will be collected from the
relevant sources as in Table 3.1.

3.3.2 Data analysis method

The process of developing optimal location for new bank branch is a rational one that takes care,
among others design, to provide balanced information about the effects that the proposed location
on other infrastructure . The traditional method for developing optimal location (or locating new
bank branch) will be modified here to reflect the use of geospatial tools with an integrated model.
This study will propose to comprise five basic stages, which are interrelated. The information
acquired in one stage of the process will be used as input in the next step. Generally, the study
data analysis will be conducted in five general stages listed below.
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  Identification of major criteria

 preparation of data set

 creation of criteria map for each factor

 Propose the new site for the new branch bank.

 developing the most optimal location for new branch banks

3.3.2.1 Identification of major criteria

In this step Important criteria in locating the new bank branch will be determined twelve criteria
including Population density, proximity to Hospital, proximity to Business center, proximity
Hotel and tourism, proximity Office and company proximity to street (main roads) proximity to
town bus station, and proximity to existing bank branches will be the criteria that will be
identified based on literature review and oral question about optimal site for new bank location.

Also, weights of each criterion will be determined by a group of municipal staff, banker, some of
the people who live on hosanna and other related profession accordingly. Using the pair wise
comparison matrix of the Analytic hierarchy Process the identified criteria will be weighted
accordingly. The inconsistency rate of the pair wise comparison matrix was controlled to be less
than 0.1.if pair wise comparison is greater than 0.1 we should have to do the weighting and pair
wise comparison again.

3.3.2.2 Preparation of data set

After all relevant data will be collected the ARCGIS map from municipality; the criteria layer
will be extracted. Second, the GIS vector layers will be prepared for all of the twelve considered
criteria. Third, the entire vector layers will be covered to raster format since the GIS software will
be used to manage the analysis (Esri ArcGIS for Desktop 10.8) is a raster-based GIS.

3.3.2.3 Creation of criteria map for each factor

Once the data set was prepared AHP spatial multi-criteria model will be used for comparing the
criteria in each criteria map and for the selection of different proposed route alternatives.
Analytical Hierarchy Process (AHP) offers a structural basis for quantifying the comparison of
decision elements and criteria in a pair-wise fashion. This kind of comparison greatly reduces
complications and enriches the simplicity of decision-making. In the GIS database, the attribute
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factors are represented as thematic map layers and it contains attribute values for each pixel in
raster data (Kiker, 2005).

3.3.2.4 Preparation of criteria weights for the factor

In criteria, mapping process weight will be assigned for the factors to combine in the raster
calculator. To consider the contribution of each factor for selection of optimal location for new
bank branches the weighting for each factor must be evaluated. All criteria will be derived
through literature review, and different expert and professionals.

3.3.2.4 Propose the new site for the new branch bank.
After analyzing the decision factors impacting the bank location, twelve criteria in Table 1,
contribute to have suitable facility locations. To demonstrate and assess the results, considering
the criteria will be depicted. The criteria maps will be transferred into point geometry and
represented the covering points. All candidate sites will be accessible to the state and were
literally located. This guarantees that the input (GIS maps) and output (Optimal facility location)
can be easily transported. After designating weights to criteria map steps, ARC GIS will be
propose the sites for making the new branch. Also, it will be classified these sites in three classes
including first priority, second priority and third priority according to their scores.

3.3.2.5 Using Maximal Covering Location Problem

This paper will propose an extension of CMCLP model for locating the bank branches in hosanna
town. This model seeks for maximizing the covered demand (minimizing the uncovered
demand). The proposed site prioritized according to the criteria that will be identified in previous
step and the 1st, 2nd and 3rd classes accordingly. The whole methodologically flow for research
work will be explained in Figure 3.2.

Problem identification
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Literature review
 Figure 3.2: Technological scheme of the research work

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 4. PROJECT IMPLEMENTATION SCHEDULE
4.1. Work Plan

This study will be completed in ten months according to the time schedule shown in Table 4.1

Table 4.1 Work Plan

Activity Time frame Month

Writing research proposal 1 2 3 4 5 6 8 9 10
Recconassience and field survey
Field data collection for service Area
Data base design
Criteria classification
Weight determination and overlay
Final output map
Drafting research paper
Draft presentation and editing
Final research presentation

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 5. Budget
The budget of this research proposed according to the time estimated to execute each activity.
The time proposed for research work will be ten months. The data will be collected for
verification of the service Area like hospitals, market place and residential Area mainly with
existing town structural plan. Accordingly the data collection takes four (4) months by using
differential DGPS.The research needs eight (8) data collectors which is four Geomatics
profession and five surveyors. The total cost break down for study will be shown in Table 5.1
below.

Table 5.1: Budget Estimation for study

No Budget item Unit Unit Quantity Total (Birr)

Measurement Rate/day
1. Periderm for Per day 724(40 days) 2 57920
researcher(principal and
co-researcher)
2. Periderm for data Per day 500(30days) 3 45000
collector (DGPS)
(Geomatics) for service
Area location
3. Periderm for field data Per day 300(10 days) 5 18000
collector(professionals
survey)
4 Total estimated research cost 120,920 ETB

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