Abstract
This study aims to analyze the attitudes toward and the perception of the risk culture with regard to operational risk (OR) among Northern Cyprus (TRNC) banking sector employees working in related departments. Although most previous studies have concentrated on the measurement and management of OR, the research remains extremely limited on the perception side as well as the formation of cultural background by human resources departments. The novelty of this study lies in the fact that it investigates OR from the perspective of human perceptions and cultural development in the context of a small banking industry. In addition, via addressing the relationship between personnel structure and the prevention of ORs in small banking sectors, this study fills an important gap in the literature. For this purpose, a survey was designed and the collected data has been analyzed by using Factor Analysis. The results are gathered under eight factors where both OR perception and cultural formation were analyzed under these eight factors. The sensitivity of perception and cultural development were then analyzed by taking into account the demographic information of the respondents. The results indicate that employees working in the treasury department are strongly sensitive toward OR. Furthermore, older staff who have experienced a banking crisis are more sensitive compared with their younger counterparts. Other findings include that developments in the financial sector increase the OR, senior management appropriation decreases the OR, and an effective OR database is required. The findings of this study can potentially serve as a guide for senior executives in the banking sector in terms of policy development and applications related to internal systems, particularly in small economies.
Highlights
In 2000, the banking sector of the TRNC was affected by a substantial banking crisis and 15 banks were liquidated as they failed to fulfill their liabilities
Even though the value for F2 “operational risk (OR) Database is Important in OR Quantification” was lower than 2, which means the participants clearly accepted that there is no database in the sector and they believe it is essential, their indecisiveness with respect to F3 may be related to the tendency to ignore the Factors (F) and variables
Another important aspect is that the perceptions of risk management/compliance departments do not differ from the credit and accounting departments
Summary
In 2000, the banking sector of the TRNC was affected by a substantial banking crisis and 15 banks were liquidated as they failed to fulfill their liabilities. As suggested by Tripati and Ghosh (2008), the most important reasons for this crisis were loose regulations and legal gaps, poor monitoring and weak supervisory activities, delayed precautions, the sudden increase in the number of banks, insufficient capital stocks and risk arrangements, and the misuse of bank resources in favor of the main shareholders. As of 2019, there are 21 banks operating in the sector (The Central Bank of TRNC, 2019). Banking legislation and risk management practices were restructured after the crisis, which subsequently affected human resources and mid-level management in particular gained more importance in the sector. As a result of the nature of operational risk (OR), along with the difficulties in monitoring and measuring it, three basic methods have been identified in terms of its application in the TRNC (The Central Bank of TRNC, 2019).
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