Derivatives use and the risk‐taking behaviour of African banks

Abstract

Evidence has been presented that banks typically maintain risk‐exacerbating derivatives positions. Within the context of African economies, this paper focuses on the impact of derivatives activities on the risk‐taking impulse of banks. It also examines the risk‐taking impulse resulting from banks' business lending efficiency. Estimation was carried out using standard ROA—and ROE—based idiosyncratic risk metrics and two‐stage least squares regression. Results indicate unsustainable levels of banking stability and increased risk‐taking. The banks exhibit hazardous behaviour in the current climate of the rapid transformation of the banking systems, calling for regulatory vigilance to limit imprudent actions. [Correction added on 17 March 2023, after first online publication: This version has been updated with a truncated abstract as supplied by the author.]