Ethical Perceptions of Customers Towards the Services of Foreign Branch Banks in Northern Cyprus
Okan Veli Safakli
Nowadays, the ethical principles, which are institutionalized as generally accepted principles like the human rights, have become very popular in the banking sector like in many other sectors. The implementation of these principles provides public trust and reputation as well as competitive edge to the banks. The branches of the foreign banks, which have their head offices in foreign countries, are expected to be in harmony with the ethical principles more than the local banks. Therefore, ethical perceptions of customers towards the services of the foreign branch banks in Northern Cyprus have been researched in this study. According to this survey, it was found out that the foreign branch banks, generally, respect the ethical principles as expected. However, there is a necessity of institutional and administrative restructuring in the direction of improving the quality of the ethic standards used in these banks.
It is generally accepted that gaining competitive edge in the banking sector
necessitates meeting customer needs and wants. Within this framework, banks
should follow the standards of good banking practice when dealing with persons
who are or who may become customers. These standards of good banking practices
formularized as code of banking ethics is necessary to ensure that the existing
respect for the banking profession in the society is set on a permanent footing,
to maintain and improve this social respect, called also as professional honor
and to maintain and protect the stability and trust in the banking sector (TBB,
2006; Stein and Yassa, 2005). Since being perceived as trustworthy is crucial
for the survival of a bank (Chiami and Fullenkamp, 2002), a respectable bank,
being an intermediary between the depositor and creditor is expected to have
honesty, integrity, social responsibility, accountability and fairness not to
damage reputation and may cause financial loss (Carse, 1999; Souter et al.,
1994; Brickley et al., 2002). Therefore, commercial banks must act in
a manner that merits public trust, confidence and reputation by integrating
core values-such as honesty, trust, respect and fairness-into its policies,
practices and decision making and apprehending compliance with legal standards
and adherence to internal rules and regulations. Although it is almost impossible
to come across with any respectable bank that would claim not to attach high
importance to core ethical values, to accept bribes in return for loans, to
lend to connected parties and to cheat customers, it is observed that there
is sometimes a gap between what banks claim and what they do. History demonstrated
that bribery and corruption have been one of the root causes of the banking
problems (Carse, 1999). Some of the common non-ethical behaviours in the banking
sector can be revealed as bribery, misuse of authority and exploitation (Hauri,
2000; Carse, 1999), connected lending (Eichengreen and Rose, 1988; Hoening,
1999; Goldstein and Turner, 1996). Lack of transparency (Coşkun, 2001)
and the political interferences (Paraız, 2000; Öçal and Çolak,
1999). When the banking crises starting at the beginning of 2000 in Northern
Cyprus is analyzed, it is founded out that unethical behaviours such as working
against regulations, political interference, asymmetric information, fraud of
bank owners and connected lending were among the root causes (Safakli, 2003,
In this study, ethical attitudes and behaviors of branch banks directly linked to the corporate governance in foreign countries have been research. The research based on the ethical perceptions of customers towards the services of the said banks.
According to the data available in December 2005, the foreign branch banks constituted 6 of the 25 banks in Northern Cyprus (26.08%), 25 of the 131 branches (19.08%) and 269 of the total 2,297 banking personnel (11.71%). Similarly, the foreign branch banks represented 31.11% of the total assets, 33.27% of the total deposits and 5.29% of the total credits (TRNC Central Bank, 2006).
MATERIALS AND METHODS
Before concentrating on the research methodology it is necessary to emphasize
the importance of ethical behavior for banking.
||Perceptions of customers towards the services of Foreign Branch
Banks in Northern Cyprus
In the banking sector of many countries, the main ethical principles such as
honesty, impartiality, trustworthiness, harmonization with the legislation of
the bank and transparency, integrity, responsibility, accountability, social
responsibility and justice have been introduced in written form and taken into
consideration (Şafakı, 2006). A different approach perceives non-ethical
behaviors as fraud and forgery, bribery, customer discrimination, power pressure,
lying and cheating, robbery by workers, insider trading, spreading negative
information and refraining from undesirable information, industry espionage,
harming the environment, interest conflict, breaching personal secrecy and money
laundering (Hortacsu and Nur Gunay, 2004). Alternatively, basic code of banking
ethics applied practically consists of transparency of transactions, confidentiality
and banking secrecy, collecting and keeping information on customers, proper
use and care of information and proper record keeping, giving right to suspicion,
promotion of banking services, service to customers, handling customers complaints,
compliance with the code, honesty, impartiality, reliability, observing social
benefit and respect to environment, fighting with laundering of crime-originated
assets, insider trading, avoiding conflicts of interest, refraining from bribery
and corruption, self development and development of others, positive and fair
dealings with officials, government representatives and competitors (Hellenic
Bank Association, 1997; TBB, 2006; Alliance Bank, 2006; Central Bank of Kenya,
2006; International Moscow Bank, 2006; The First national Bank in Trinidad,
2006; The Bank of New York, 2006).
The survey was made in May 2005 with 250 customers of mainly foreign branch banks, who were selected at random in the district of Nicosia in Northern Cyprus.
Seventeen ethical principles shown in Table 1 were used in the questionnaire. In the questionnaire, the Likert type scale questions were utilized in order to bring to light the compliance of the foreign branch banks with ethical principles. Such that, the expression of Foreign branch banks conform to ethical principle in question is answered by the scale as follows: 1 = I definitely disagree, 2 = I disagree, 3 = I hesitate, 4 = I agree, 5= I definitely agree. The percentage method has been applied for the analysis of the findings obtained by the scale.
RESULTS AND DISCUSSION
The individual characteristics of the respondents were identified by demographic variables as gender, age, marital status and educational background. Respondents (250) included 34% female and 66% male and fell in the following categories with respect to age: 18 to 25 (25%), 26 to 33 (36%), 34-41 (20%) and above 60 (19%). The majority (60%) was married. Educational status of depositors shows that they carry high intellectual capacity. Such that 72, 8% of them have the educational level of high school or above while 38% of them possess university and postgraduate degree.
The main findings of the survey, which was about the adherence to the ethical principles by the foreign branch banks, are shown in the Table 1. Two hundred and fifty persons were asked to answer about each of the ethical principles and their percentages are shown under the following codes: (A) = I definitely disagree, (B) = I disagree, (C) = I hesitate, (D) = I agree, (E) = I definitely agree.
According to majority view (D+E>50) the foreign branch banks are perceived
as ethical for 15 principles among 17 ethic principles. Regarding the remaining
2 ethical principles which are respect to environment and fighting with money
laundering it can not be concluded that banks behave unethical because negative
opinion (A+B) of respondents for these 2 principles are not greater than 10%.
For both of the two principles, the perception of the hesitating group was about
50%, which means that the bank customers did not have the information and the
data, sufficient to make a decision on the subject. Therefore, it can be commented
that the foreign branch banks in Northern Cyprus do not behave outside the ethical
principles. But one should stress on the level of the ethical behavior. For
example, from the point of view of positive perception (D+E), the number of
the ethical principles, which make over 70% of the ethical behavior of the banks,
are only 9.In this regard, this affirmation can be made. Generally, between
68 and 75% customers feel happy about ethical standards of their banks. Presence
of 2 and 9% customers who are still are undecided about some questions may be
explained as a matter of lack of knowledge about the performance of their banks.
Importantly, 15 and 20% of customers are demanding higher ethical standards
from their banks.
The globalization has been experienced in high dimensions in the banking sector and there have been great achievements in the name of international standardization in the developments such as the Basle Accord and the Acquis of the EU. In this framework, the adherence to the institutionalized ethical principles in the banking sector is a generally accepted situation. In comparison to the local banks, the foreign bank branches in Northern Cyprus do not confront with any obstacle in their opening to the foreign world and thus, they act like the locomotive of the Turkish Cypriot banking. Therefore, it is deemed as if the foreign bank branches in Northern Cyprus adhere to the ethical principles and this postulate is not rejected by this survey. However, it was found out that it is necessary to institutionalize and enhance the dimension of the ethical behavior in an environment of dynamic competition. As an example, it is necessary that the adherence to the ethical principles should be institutionalized. The personnel should be in continuous education in order to perceive the necessity of adherence to the ethical principles and to have an understanding of leadership. The perception of ethical principles by the customers about the banking services should be surveyed continuously. And finally, proactive precautions should be taken in this direction.
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