Bank reputational risk : a local multi-perspective interpretation

Abstract

Bank reputation risk management has long been an important concept in safeguarding the financial system. A good reputation takes years to build, but mere moments to lose. This research study set out to understand Malta’s stance on reputational risk. This was achieved by analysing the perceptions of local bank managers and to determine to what extent this risk was managed by local banks. The perceptions of various stakeholders were also analysed, considering that they are the main agents for sparking this risk. This was done through face to face semi-structured interviews and qualitative analysis. The results of this study found that although bank reputational risk is being managed in one way or another, there is still a lot of uncertainty regarding the way it should be managed and measured. This is mainly due to the fact that perceptions are ever changing and complex to understand. Awareness on managing this risk as a stand-alone risk is still low. Social media is a large risk to local banks considering that Malta is small and word travels fast. Findings also show that clients still distrust banks. This is even more so after considering the recent reputational events, such as that of a foreign bank established in Malta which the MFSA has placed under administration, closing down. However, it was also established that if a reputational event is handled well, it may lead to a competitive advantage. Lastly, although banks believe they are communicating enough with their clients, clients on the other hand believe that they are still being kept in the dark on various affairs. The research found that educating clients is key to managing this complex risk and protecting good public perceptions.