Off-Balance Sheet Activities and Commercial Banks' Performance

Abstract

The purpose of this paper is to analyze the effect of off-balance sheet activities on banks' risk, financial leverage, liquidity and profitability. Thus, a sample of 10 listed banks on Tehran stock exchange from 1388 to 1394 is considered. A panel data regression is used to test the relationship between off-balance sheet activities and commercial banks' risk, liquidity, financial leverage and profitability. Results show that the influence of off-balance sheet activities on banks' leverage and profitability is more than the influence of off-balance sheet activities on banks' risk and liquidity. Increasing amount of letters of credit in contrast to guarantees, decrease profitability without affecting other aspects of banks' performance. However managed funds in one hand increase profitability, and in the other hand increase financial leverage and this can increase banks' credit risk and put banks thorough some troubles meeting their obligations. Key words: Off-balance Sheet Activities, Risk, Financial Leverage, Liquidity JEL Classification: G20,G21.

Keywords

• Off-Balance Sheet Activities
• Risk
• Financial Leverage
• Liquidity