Risk Watch with Alberta Quarcoopome: Emotional intelligence as a risk management tool in banking

“The emotionally intelligent person is skilled in four areas: identifying emotions, using emotions, understanding emotions, and regulating emotions.”
— John Mayer and Peter Salovey

I am sure the first thing that has crossed your mind is:

• “Are you serious?”
• “What has emotional intelligence got to do with my service quality?”
• “Are you not taking it too far?”

Well, this is far from what you are thinking. This year, my training offerings have concentrated on one major topic – Customer Experience Excellence. Some people have described it as an easy topic to treat, and can easily be wrapped around one’s finger. Recent experiences in this space with over a thousand five hundred participants across banks that we have interacted with, have proven that without emotional intelligence skills, service quality continues to be a fruitless endeavour in the banker-customer relationship. Emotional intelligence is no more a “soft skill” in banking—it is a risk management tool. Emotional Intelligence is the ability of each and every person to know themselves and others and to manage the emotions as the situation needs.

 

Developments in Banking

 

Any nation’s ability to develop is primarily dependent on its strong banking system. The banking industry has undergone a paradigm shift in the twenty-first century as a result of technology breakthroughs, and all banks have modernized their infrastructure and technology. The banking system faces a number of difficulties due to quick changes and more informed clients. The quality of the services is one of the main obstacles. High service quality can be attributed to a variety of reasons. One of the primary causes is human-related. A solid basis for the banking system’s success is provided by human resources, since the employees who work in the banks have direct contact with customers. Therefore, the banking system is impacted by human activity either directly or indirectly. People are unpredictable because they come from a variety of emotional backgrounds. Their ability to maintain emotional stability is essential for all of their activities. Emotional stability is outlined with Emotional Intelligence. Emotional Intelligence (EI) refers to the ability of a person to recognize, regulate and manage emotions in ourselves and others effectively.

Several decades ago, training was mainly on customer service, that is, performing a function to serve the customer. Recent years have emphasized on the customer experience with the emphasis on how the customer feels after several encounters in the various touch points.

 

The difference between customer service and customer experience

 

Customer experience and customer service are different, but both are important. Customer service is helping customers solve problems, showing them how to use products, and answering questions. The difference between customer service and customer experience is that Customer service is one piece of the puzzle focused on human interaction and directly supporting customers, but Customer experience is the sum of the entire customer journey with the business. A Business cannot exist without its customers, and this is why banks are really focusing on how to win new business and more importantly retaining existing customers.

“Delivering great customer experience has become a top strategic objective of many corporate organizations”…Bloomsberg

The Relationship between Emotional intelligence and customer experience

Bank staff with high EI are better at managing emotions, resolving conflicts, and maintaining trust, which directly minimizes operational, reputational, and compliance risks. Emotional Intelligence is considered as the one of the most important human factors which will affect the service quality of the banking sector.  By reducing stress, improving communication, and fostering trust, EI directly lowers operational, reputational, and compliance risks. Banks that invest in EI training for employees gain resilience and stability in a highly volatile industry.

Key Research findings:

An interesting publication in the International Journal of Advanced Research in Commerce, Management & Social Science (IJARCMSS) ISSN :2581-7930, Impact Factor : 7.270, Volume 08, No. 02(I), April-June, 2025, pp 79-84.   A Study on Emotional Intelligence among the Employees of Banking Sector with Special Reference to Kannur District, India, states:

“There are lots of factors which affects their level of Emotional Intelligence, which includes stress, work environment, personal matters, relationship between co workers, etc. It could find out that the employees have high degree of motivation compared to other components of Emotional Intelligence. The employees should be initiated to enhance their self-regulation level. Moreover, the study reveals that the level of Emotional Intelligence affects the performance level of employees. Employees with emotional equilibrium are better at solving problems and making decisions, and they can adjust to changing circumstances.

The banking employees have high level of motivation skill which is then followed by Self Awareness, Social Skill, Empathy and Self-Regulation. The data analysis is included with hypothesis testing by using Chi-square tool. Through this, it is evidenced that gender and marital status have association between Emotional Intelligence. Stress at work is the primary cause of emotional instability. A suitable strategy for lowering employee work-related stress should exist. Stress management, equitable leave policies, entertainment initiatives, and professional development and motivating programmes can all help make it happen. The bank ought to take the lead in raising and developing staff members’ emotional intelligence. This can be achieved by creating and offering staff members efficient training. Their motivation, empathy, self-control, self-awareness, and social skills will all improve as a result.

As a result, the study shows that emotional intelligence contributes to the success and competitive advantage of banks. The banking industry is one of the service sectors which undergoes drastic changes with regard to future time period. The increased workload, competition, technological advancement etc. will always create work pressure among the employees and it will affect their performance.”

My 2025 Training Experiences

I am a firm believer that understanding personality types in the workplace is a key factor that is needed to enhance teamwork, appreciation of the uniqueness of each type and learning to cope and have good inter-personal relationships. My favourite equation still holds:

HAPPY STAFF= HAPPY CUSTOMERS= HAPPY BANK.

Training staff on developing excellent customer experience cannot work without training in emotional intelligence. I found myself playing the part of a virtual mentor for some participants, even after the training programs had been completed.

How does Emotional Intelligence Reduces Risk in Banking?

• Stress Management & Resilience
  Studies show a negative correlation between emotional intelligence and stress among bank employees The International Journal of Indian Psych?logy. Lower stress means fewer mistakes in high-stakes financial transactions, reducing operational risk.
• Improved Customer Service
  EI enhances empathy and communication, leading to better customer satisfaction knust.edu.gh. Satisfied customers are less likely to default or escalate disputes, reducing credit and reputational risks.
• Conflict Resolution & Teamwork
  Employees with strong EI handle workplace conflicts constructively. This prevents toxic environments that can lead to errors, fraud, or compliance breaches.
• Better Decision-Making Under Pressure
  EI helps employees regulate emotions during crises (e.g., market volatility, customer complaints). Calm, rational responses reduce impulsive decisions that could expose the bank to financial or legal risks.
• Trust & Relationship Building
  Emotional awareness fosters stronger client relationships. Trust reduces the likelihood of customer churn and reputational damage, which are major risks in competitive banking.
• Adaptability to Change
  Banking is rapidly evolving with digitalization and regulatory shifts. EI enables employees to adapt smoothly, reducing risks tied to resistance, errors, or compliance failures

Practical Examples

• A teller with high EI notices a distressed customer and calmly de-escalates the situation, preventing reputational harm.
• A loan officer uses empathy to understand a client’s financial struggles, offering tailored solutions that reduce default risk.
• A compliance officer manages stress effectively, ensuring accurate reporting and avoiding regulatory penalties.
• When there is a system failure, various customers have different ways of expressing their anger and frustration.

Let us look at these scenarios of service breakdown:

• Delayed salary credit for officers.
• ATM swallowing a card.
• Failed USSD/mobile banking transaction.
• Pension payment errors.
• Miscommunication between front office and operations

The above scenarios are typical in banking. Customers are therefore right in complaining to the bank. However, these are best handled when staff have good communication skills topped up with emotional intelligence. The application of the Service Recovery Framework is very appropriate.

The Service Recovery Framework (4 A’s)

1. Acknowledge – Recognize the issue. (“I understand this is frustrating for you.”)
2. Apologize – Even if it’s not your personal fault.
3. Act – Provide a clear next step or immediate fix.
4. Assure – Rebuild confidence in the bank.

Good interpersonal relationship is built around emotional intelligence. The ability of staff to work as a team results in a productive working environment, reduction in human errors, motivated teams and reduction in losses and reputational damage to the bank.  By understanding and managing their own emotions and those of others, bankers can better resolve conflicts, build trust, and improve client satisfaction.

Conclusion

Emotional intelligence is not just a “soft skill” in banking—it is a risk management tool. By reducing stress, improving communication, and fostering trust, EI directly lowers operational, reputational, and compliance risks. Banks that invest in EI training for employees gain resilience and stability in a highly volatile industry.

ABOUT THE AUTHOR

Alberta Quarcoopome is a Fellow of the Institute of Bankers, and CEO of ALKAN Business Consult Ltd. She is the Author of Three books: “The 21^st Century Bank Teller: A Strategic Partner” and “My Front Desk Experience: A Young Banker’s Story” and “The Modern Branch Manager’s Companion”. She uses her experience and practical case studies, training young bankers in operational risk management, sales, customer service, banking operations and fraud.

CONTACT

Website www.alkanbiz.com

Email:alberta@alkanbiz.com  or [email protected]

Tel: 233-0244333051/ 233-0244611343

 

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