Determinants of Banks’ Risk-Taking Behaviours in Africa: A Regulatory Perspective

Abstract

The intermediation role of banks between borrowers and savers exposes them to various risks which impact their risk appetite and behaviour. Using annual panel data for the period 2010 to 2019, this paper examines the determinants of risk-taking behaviours of banks within the African context. The study sampled 45 listed banks from African nations that have adopted the Basel III regulatory requirements and used the random effect estimator to fit the static panel data models established for the study. The study shows that minimum capital requirements, capital buffer premium and profitability were significant determinants of the risk-taking behaviour of the African banks. However, compared to other variables, the minimum capital requirement remained the most important factor in terms of determining the risk-taking behaviour of the selected African banks. This is because the minimum capital requirement determining measure is more significant across the three measures of the risk-taking behaviour of the African banks compared to others. The study recommends that African banks should establish risk limits, improve risk identification, and establish a platform for bank stress testing by using the key determinants of risk-taking behaviour in making strategic business decisions.