The impact of operational risk on customer experience

Abstract

In the dynamic financial sector, banks are actively striving to cultivate customer loyalty as a cornerstone for ensuring sustainable value creation. This strategic endeavor hinges on finely tuning the balance between retaining clients and proactively managing risks—a pervasive responsibility throughout all facets of banking operations. Risk management plays a pivotal role in shaping operational strategies, continuously monitoring processes to detect and rectify errors, and ensuring adherence to stringent post-operational financial standards. This integrated approach not only serves to maintain high levels of customer satisfaction but also fortifies banks against the inherent volatilities of the financial market.

To deepen our understanding of how operational risk specifically impacts customer satisfaction, we undertook a rigorous methodology. Initially, we utilized Monte Carlo simulations to generate 341 of potential scenarios. Subsequently, a meticulous analysis of these scenarios was conducted using logistic regression adjusted according to the Firth model. This sophisticated statistical approach conclusively demonstrated the significant influence of operational risk on customer satisfaction. The findings underscore the critical necessity for banks to adeptly manage operational risks to uphold and enhance customer trust and loyalty—vital components for sustained performance in an intricate and uncertain financial landscape. Furthermore, this proactive management of operational risks not only mitigates potential pitfalls but also enhances banks' competitive positioning in a constantly evolving economic environment. By bolstering resilience and responsiveness, banks can effectively navigate challenges and capitalize on opportunities, thereby supporting their long-term growth and stability. Ultimately, this strategic foresight and capability to manage operational risks effectively are pivotal in reinforcing banks' market standing and fostering enduring relationships with clients amidst the dynamic complexities of the financial sector.

Keywords: Operational risk; financial risk; prudential regulation; banking performance.

JEL Classification: G21, G28, G32.

Paper Type : Empirical Research.