How to Optimize Reputational Risk Management in Banks

April 20, 2021

Bank Reputation Risk Management

Reputation is one of the most valuable assets that a bank can have. It’s also the most fragile one.

After all, reputation is the key to building public and consumer trust. A great reputation can set a bank apart from its competitors. Negative reputation, meanwhile, can drive away potential clients and increase customer churn.

In a 2014 Ernst & Young survey, respondents said reputation was a “very important” factor in deciding whether or not to trust a financial services provider.In 2012, Edelman Insights found that financial services and banking was the industry consumers trusted the least — even less than they did the media sector.A 2017 global risk management survey found that damage to brand and reputation is ranked as the top risk management concern. While the fallout from the big banking scandals and corporate collapses of previous years has since slowly faded away, a recent FIS report indicates that 75 percent of consumers agree there is still a gap between their expectations and bank performance across a range of factors essential to creating trust. “The trust factor continues to be a concern for consumers,” the report reads, highlighting the need “to reset the foundation for consumer relationships.”

To state simply: reputation is a foundational component of a bank’s ability to inspire trust.

This leads us to the question: what is bank reputation risk management?

Let’s start by defining what reputation or reputational risk is. Bank reputational risk is the risk of loss of reputation. Unlike other risks that banks have to manage — credit, market, operational, liquidity, etc. — reputational risk is intangible and hard to measure.

Reputational risk can cause damage to a bank’s brand and reputation. Its impact is very real. According to a Finacle report, this type of risk is “felt in no uncertain terms as negative publicity, litigation, loss of revenue, clients, partners and key employees, decline in share price, and difficulty in recruiting talent.”

Reputational risk management in banking, therefore, can be defined as the forecasting and evaluation of reputation risks, together with the identification of procedures to avoid or minimize their impact.

This process or practice helps banks shape public perception of its products, services, and brand in ways that foster public and consumer trust.

Reputational Risk

By: Rexly Penaflorida II
Title: How to Optimize Reputational Risk Management in Banks
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Published Date: Wed, 07 Apr 2021 15:00:26 +0000


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