The Determinants of Risk Engagement: A Study of Bank-Specific Factors Influencing Risk-Taking in Pakistan’s Commercial Banking Sector

Abstract

In the context of Pakistan's commercial banking industry, this study examines the factors unique to individual banks that affect risk-taking behavior. To ensure banking stability and performance in the face of growing financial complexity and changing regulatory environments, it is essential to comprehend the factors that influence risk engagement. A positivist quantitative paradigm is employed to analyze a sample of 22 commercial banks from 2005 to 2023, utilizing a dynamic panel data set. The Generalized Method of Moments (GMM) is employed to address potential endogeneity and dynamic relationships among the variables. The study includes important bank-specific factors such as credit growth, bank size, profitability, and risk appetite that have statistically significant effects on risk-taking behavior. The results underscore the importance of careful capital management and adequate regulatory supervision in mitigating excessive risk-taking. This study contributes to the growing body of research on bank risk management in developing nations, offering valuable insights for Pakistani financial regulators and policymakers