Reputation risk management in the banking industry

Reputation risk management in the banking industry

Introduction

Reputation risk is often known as the reputation risk because, in most instances contains the loss of company financial capital, social capital as well as market share that results in the damage of the company’s reputation. Risk reputation events are known as risk violations,risk issues, safety issues, lack of sustainability. It could potentially cost the company corporate relation that can cost the company shareholders as well as business, as well as a result of the closure. We analyze reputation risk management is banking sectors and ways that one could potentially manage the risk successfully, we analyze the potential effect of reputation risk in the banking sector

Reputation risk

The banking sector are more often than not subjected to the reputation risk; this could take place due to lack of bank stability, theft, employee fraud. It has seen most banks loose corporate relations that, in most cases, shareholders pulling out their shares from the banks, and this has subjected banks to temporal and sometimes permanent closure (Britchenko.et.al,2018). Reputation risk management in banking sectors plays a crucial part in ensuring that banks are protected from unnecessary social, financial, and safety loss. It can also be known as evaluating and forecasting reputation risk together with the identification of procedures to avoid or minimize risks in the banking industry potentially.

As per this definition, a reputation risk occasion may happen, which triggers a recognizable money related decrease in the market estimation of the firm. After subtracting from this market capitalization misfortune the present estimate of direct and assigned costs, for example, fines and punishments and settlements under ordinary litigation, the equalization can be credited to the effect on the company’s reputation (Hogarth.et.al,2018). Firms that advance themselves as reputation risk  standard-setters will, as needs are, will, in general, endure more significant reputation risk  misfortunes that organizations that have taken a lower profile  that is, reputations risks related with indistinguishable occasions as indicated by this definition might be profoundly eccentric to the individual firm

Bank Risks

Bank risks are identified in two different sections: the macro level and the systematic uncertainties. When this occurs, the whole bank management faces some trouble (Heidinger,& Gatzert,2018). The systematic risk occurs typically due to the expected or unexpected events in financial and market sectors .while macro has been known to arise due to a staff’s oversight that could cause disintegration in resource esteems and, thus, decreasing the bank’s intrinsic worth.

Loans and Advances

It happens when customers default a loan, and this could be due to failed business or, in some cases, loss of a job (Heidinger,& Gatzert,2018). This set of risk has been known to affect the banking industry as a whole as there are quite several defaulters. These types of risks could affect the reputation of the bank

The source of reputation risk

For the banking sector to analyze and resolve threats, they have to identify the source of the reputation risk. It plays a crucial part in ensuring that an organization can prevent or potentially minimize the risk (Heidinger,& Gatzert,201t8). The foundation estimation of a budgetary establishment as a going concern balanced against these objective standards. One of them, promote execution, will, by and large, be reasonably direct and easy to redress or repel. The other is execution against the direct corporate standard is progressively dark anyway, perhaps essential as a wellspring of peril to speculators.

The banking industry management’s main framework is to ensure that they work to optimize between these set standards. In case it meanders exorbitantly far toward the way fulfilling the necessities of social and regulatory controls, it dangers horrendous appearing in the market, discipline by financial specialists, and maybe a change in corporate control. If it strays toward over the top market execution and sails exorbitantly close to the breeze in wording or crude market direct, its lead may have horrifying results for the firm, its directors, and its financial specialists. Finally, discovering a concordance is a crucial corporate organization issue.

Such rules have been known to create conflict between banking sections and the regulations, and this has, in most cases, played a critical part when it comes to the reputation risk of most banks. Such are the standards of the game, and money related mediators need to live with them. Be that as it may, they are not unchanging (Eckert & Gatzert 2017). There is a consistent strain between firms also, controllers about proper requirements on corporate direct. Some of the time, monetary delegates win fights prompting times of deregulation. In some cases, it’s conceivable to persuade the open that self-guideline, what’s more, advertise disciplines are incredible enough to hinder the requirement for external control.

Other risks have been a fraud, which is expected or non-expected; this has played a crucial part in impacting the operation and reputation of the bank. There have been instances where an employee has been involved in bank fraud or Money laundering, and this has affected the banks’ reputation with its customers  and shareholders (Eckert,& Gatzert 2017).

Managing reputation risk

Reputation risk is possible for most banking sectors, and most leading banks have been able to minimize and possibly prevent risks associated with the reputation of the bank (Eckert,2018). This paper seeks to analyze ways most banks could manage reputation risks in banks

Demonstrate integrity in the banking sector

It plays a crucial part in reputation risk management. Customers are known to opt-out of a bank if they feel as though the bank is not making their interests a priority. When customers stop using a particular bank, the reputation of that specific bank suffers. Creating an avenue where you continuously communicate with the customers demonstrates integrity (Eckert,2018). This successive correspondence with clients ought to be casual and endeavor to commit. Budgetary organizations likewise ought to speak with and draw in their representatives so workers will fill in as brand envoys in the network. It as well is portrayed on how the bank handles customers’ issues with honesty and truthfulness, customers expect their banks to be transparent and honest about their charges and bank practices and policies this helps they believe that the bank demonstrates integrity.

Active management of online platforms and interactions

With today’s technology, individuals rely on social media platforms more than word of mouth (Eckert,2018). Customers tend to rely on social media for research feedback on interactions as well as services for different corporate institutions. Social media would play a critical part in banks that are looking into managing reputation risk for its bank. Most customers will rush to their social media platforms to post their queries, concerns, and complaints. Ensuring that they have a dynamic response team for their social media platform will help clients feel as though their bank is interactive. Likewise, cash related establishments are giving extensively more thought to web-based systems administration checking, notes. Not at all customer studies or focus social events and web-based systems administration watching outfits a cash related foundation with near progressing bits of information into how customers see the affiliation and how the membership investigates to its mates.

Social media has become one of the leading platforms that corporate institutions rely on when it comes to conducting customer surveys. It has also assisted banks in cross-referencing its data by demography, products they offer as well as customer group according to the banking industry needs.

Crisis preparation

One of the most pivotal pieces of overseeing notoriety dangers for banks is the ability to manage and forestall notoriety emergencies. Most banks have made it a priority to select a group of quick masterminds that have some expertise in evaluating risks and thinking of approaches to forestall them. Help bank the board averts pointless capital misfortune, burglary just as superfluous claims that could cost the bank its notoriety and cash (Hogarth.et.al.,2018). The emergency supervisory group should regularly meet, maybe quarterly or even month to month, to talk through notoriety occasions that could affect the organization, and examine how to change methodologies to manage notoriety issues.

The council should concentrate more on reputation than money related measurements implies that monetary establishments. Should name an emergency representative ideally somebody with emergency media preparing, which in most cases, helps in damage control, which allows most banks to control the information being posted in the media platforms regarding the bank. Banks need to come up with the standard operating system meant to assist crisis management and training for all workers in ensuring that there is enough information on how to tackle the reputation crisis.

Promote honesty and productivity in workplaces

In various cases, it has been reported that disgruntled workplaces have been a source of reputation risk in the banking sectors. It is the work of the company management to ensure that the employees’ needs are met. It will, in return, promote integrity within the office as well as encourage teamwork (Hogarth.et.al.,2018). Banking sections should come up with innovative ideas within the company that promotes growth among employees as well as promotion. Negative publicity about the work environment in an individual bank could taint the name of the bank as well as damage the reputation of the bank. Ensuring that the workers are well taken care of could go a long way in managing the reputation risk in the banking sector.

Data Protection

Client’s trust most banking sectors with their information; this incorporates the absolute most delicate individual to corporate information that could include, identification number, home address, telephone numbers as well as PINs. Banks should make it a priority to protect their customers’ information from data breaches that could cost their customers unnecessary loss.

Data breaches will subject the banks to unnecessary lawsuits and loss of vast amounts of money (Hogarth.et.al.,2018). Banks’ priority is safeguarding the customers’ money as well as information by purchasing state of the art facilities. Recruiting a team of security analysts and its technicians that would help maintains the downtime effectively without loss of any data that could cost the bank as well as the customer.

Maintain customer focus

By offering the best products in the market and services. Banks need to be crucial in maintaining customer focus within the banking halls as well as the social media platforms. Developing the clients’ connections that are past giving value-based accommodation and not only focus on client experience is essential when it comes to customer focus for the banking sector (Hogarth.et.al.,2018). Building the customer base includes being proficient, offering first call resolution to clients query, flexibility, and customized products will help the client feel like a priority and essential to the banks’ growth and daily business. Focus on next-level assistance and backing. Furthermore, draw in with clients in manners that assist them with accomplishing a superior comprehension of how your items and administrations can live up to their objectives and desires.

Conclusion

Overseeing reputation risks for banks would include banks leading consistent checking reviews to comprehend the dangers the bank is exposed to and taking measures to deal with and forestall actions. Banks should be predictable in discovering approaches to deal with the banks’ notoriety from expected and surprising occasions. Reputation hazard the board in the bank business has been primary in helping the business forestall superfluous monetary misfortune just as client misfortune that might incite to investors pulling out of the bank because of precariousness and in the long run conclusion of the bank.

Even though overseeing reputation risk could appear to be expensive, the corporate organizations are depending on the customer’s input as they have a gigantic influence with regards to the notoriety of the organization. Leading client overview and selecting internet based life mediators has helped the banks comprehend the holes they have to fill for better business for the time being and what’s to come. The reputation hazard has cost a lot of banks because of pointless outrages. In this manner, most have selected an emergency supervisory crew to aid the administration of the banks’ notoriety chance.

Reference

Britchenko, I., Kunitsyna, N., & Kunitsyn, I. (2018). Reputation risks, the value of losses, and the financial sustainability of commercial banks.

Eckert, C. (2017). Corporate reputation and reputation risk. The journal of risk finance.

Eckert, C., & Gatzert, N. (2017). Modeling operational risk incorporating reputation risk: An integrated analysis for financial firms. Insurance: Mathematics and Economics, 72, 122-137.

Gatzert, N., & Schmit, J. (2016). Supporting strategic success through enterprise-wide reputation risk management. The Journal of Risk Finance.

Heidinger, D., & Gatzert, N. (2018). Awareness, determinants, and value of reputation risk management: Empirical evidence from the banking and insurance industry. Journal of Banking & Finance, 91, 106-118.

Hogarth, K., Hutchinson, M., & Scaife, W. (2018). Corporate philanthropy, reputation risk management, and shareholder value: A study of Australian corporate giving. Journal of Business Ethics, 151(2), 375-390.

Hogarth, K., Hutchinson, M., & Scaife, W. (2018). Corporate philanthropy, reputation risk management, and shareholder value: A study of Australian corporate giving. Journal of Business Ethics, 151(2), 375-390.

Honey, G. (2017). A short guide to reputation risk. Routledge.