The Determinants and Policy Implications of Off-Balance Sheet Activities in MENA Countries Commercial Banks

Ahmad Khasawneh and M. Kabir Hassan

No 552, Working Papers from Economic Research Forum

Abstract: Although there is literature about off-balance sheet (OBS) activities in the banking system, this is the first paper that investigates the off-balance sheet activities in the Middle East and North Africa (MENA) banking industry. It aims to test the tax regulatory hypothesis and the market discipline hypothesis in determining OBS activities of MENA commercial banks using a panel dataset for the period 1996–2007. We employ Mansfield’s (1961) logistic diffusion model and we consider OBS activities as real financial innovation following a time trend diffusion curve. The model is modified to include regulatory and non-regulatory bank-specific factors in addition to macroeconomic factors. We also added a country dummy vector to incorporate the country’s institutional and financial environment and time dummy vector to control for the political and economic events over time. The results reveal that OBS activities do not follow Mansfield’s financial diffusion model, and that adoption is decreasing over time. Regulatory tax hypothesis is rejected for the case of MENA banks since most of them face high regulatory pressure which negatively affects the OBS adoption. The results also suggest that OBS activities follow the business cycle notion and that the usage decision depends on economic conditions. Moreover, there exists an informational economy of scope between loans and OBS activities. Banks will participate more in OBS activities to reduce their risk resulting from loans. Also, OBS activities are profit driven. Political and economic events negatively affect MENA banks’ OBS activities. The implications of these results suggest that regulations, institutional and technological deficiency in MENA countries prevent the banking system from adopting different financial innovations.

Pages: 24
Date: 2010-01-10, Revised 2010-01-10
New Economics Papers: this item is included in nep-ara, nep-ban and nep-cwa
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published by The Economic Research Forum (ERF)

Downloads: (external link)
http://erf.org.eg/wp-content/uploads/2014/08/552.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://erf.org.eg/wp-content/uploads/2014/08/552.pdf [301 Moved Permanently]--> https://erf.org.eg/wp-content/uploads/2014/08/552.pdf)
http://bit.ly/2lY1oSQ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:erg:wpaper:552

Access Statistics for this paper

More papers in Working Papers from Economic Research Forum Contact information at EDIRC.
Bibliographic data for series maintained by Namees Nabeel (nnabil@erf.org.eg).