Since 1980's the concept of risk management entered into the agenda of financial markets and specifically after the introduction of Basel II Accord, has become the core basis in the banking sector. Financial liberalization, increased competition between financial institutions, the development of credit markets, the expansion of the credit derivatives market and the invention of new financial instruments, mainly complicated the management of credit risk for the banks and other integrated risks as a result of these developments. The first step in effective risk management process is to identify the risk exposures of the banks, to measure these risks and to develop methods to control and mitigate these risks. At this stage, Basel Accords and various regulations on risk management set forth by different supervisors are taken into account. In this study, the concept of risk management and its developmental stages until its current framework have been analysed and the implementation phase within TRNC has been examined.

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.