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Investigating the Impact of Derivatives on Stability in the Financial Performance of the Banking Sector of Pakistan

Author

Listed:
  • Asif, Rabia
  • Hassan, Sobia
  • Nisar, Sabahat

Abstract

Purpose: The aim of the paper is twofold, to contribute to the ongoing debate regarding highlighting the determinants of derivative usage by commercial banks specifically from a dual banking economy perspective, and to discuss the influence of derivatives usage on the value and stability in the financial performance of the banking sector of Pakistan.Design/Methodology/Approach: The study used the Z-Score and CAMELS Index to compare the stability analysis from different dimensions. Further, the impact of bank-controlled variables on the use of derivatives has also been analyzed.Findings: By conducting Panel regression models, the results revealed that derivatives used by banks reduce the profitability and ultimately stability of banking and increase the bank-specific risk.Implications/Originality/Value: These findings point towards serious intentions regarding using derivative instruments in an economy where dual banking is practiced.

Suggested Citation

  • Asif, Rabia & Hassan, Sobia & Nisar, Sabahat, 2023. "Investigating the Impact of Derivatives on Stability in the Financial Performance of the Banking Sector of Pakistan," Journal of Accounting and Finance in Emerging Economies, CSRC Publishing, Center for Sustainability Research and Consultancy Pakistan, vol. 9(3), pages 329-336, September.
    • Handle: RePEc:src:jafeec:v:9:y:2023:i:3:p:329-336
    DOI: http://doi.org/10.26710/jafee.v9i3.2752
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