The Relationship Between Depositor Behaviour and Risk Tolerance in a South African Context

The risk tolerance of an individual depositor plays an integral part in a financial decision-making process. Risk perception is furthermore associated with the level of depositor uncertainty, which ultimately leads to irrational depositor behaviour. The South African banking industry is closely concentrated and dominated by a few banks, hence, any adverse changes in the banking industry will affect the financial sector tremendously. It was therefore necessary to test how much risk depositors are willing to tolerate. This paper made use of hypothetical operational risk events within a bank in order to test how likely depositors will be to withdraw funds from their bank accounts. Correlation analysis was used to test the relationship between depositors’ likelihood to withdraw and their risk tolerance levels. An inverse relationship exists between depositors’ risk tolerance and their willingness to withdraw. Depositors will be less likely to withdraw the higher their risk tolerance level and more likely to withdraw the lower their risk tolerance level. Older depositors indicated to be risk adverse while a positive relationship was found between risk tolerance, income, and education level.