Off-Balance Sheet Activities Impact on Commercial Banks Performance: An Emerging Market Perspective

Bora Aktan, Sok-Gee Chan, Saša Žiković and Pinar Evrim-Mandaci

Economic Research-Ekonomska Istraživanja, 2013, vol. 26, issue 3, 117-132

Abstract: This paper examines the effect of off-balance sheet (OBS) activities on performance of the banks listed on Istanbul Stock Exchange (ISE). We use four measures of performance including bank’s risk exposures, profitability, leverage, and liquidity position. We find that both bank-specific risk and foreign exchange rate risk are positively related with OBS activities. This indicates that OBS activities increase bank-specific and foreign exchange risk exposures of the banks in Turkey. The positive relationship might serve as a warning to bank’s speculative action using OBS transactions in the market. The results also indicate that OBS activities, due to its hedging perception, improve bank’s stock returns but have a negative impact on return on equity. In addition, OBS activities do not have a statistically significant impact on leverage or liquidity.

Date: 2013
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DOI: 10.1080/1331677X.2013.11517625

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