Investigating the Impact of Bank Specific Factors on Risk Taking in Commercial Banks: Evidence from Pakistan

Abstract

The banking industry in any of economy is suffered with the risks that are unique in nature due to the nature of the operations of their business. The current study analyzed the impact of the bank specific factors on the risk taking in commercial banks in Pakistan. For this reason, data was collected from the years 2015 to 2021.The analysis showed that bank specific factors impact the risk-taking in the commercial banking business. The study findings agrees with some of the earlier studies who found out that reduced competition among commercial banks boosted risk taking. The researchers stated that when the banking market structure evolved, banks raised the loan interest rates hence incurring more risks that eventually led to riskier loan portfolio. Banks’ capital plays essential functions in absorbing risks but raises moral hazard difficulties. Commercial banks are regulated and each bank is obliged to meet with capital requirements as per legislative standards. Commercial banks with big capital base may believe they are too large to fail and continue to amass dangerous loan portfolio. Commercial banks have to re-examine the quality of their assets. Both bank risk appetite and credit growth effect risk-taking among commercial banks and both impinge on the banks assets. Diversification from the typical banking operations as well as ideal balance between capital growth and lending can generate beneficial outcomes in limiting risk-taking in banking business.