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Impact of Bank Regulatory Change and Bank Specific Factors Upon Off-Balance-Sheet Activities Across Commercial Banks in South Asia

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  • Muhammad Farhan Basheer
  • Mohamad Helmi Hidthiir
  • Waeibrorheem Waemustafa

Abstract

In recent decades, off-balance sheet activities have emerged as an innovation in banking and finance as it is the easiest source of additional fee income that is beyond a bank’s balance sheet activities that avoids regulatory costs, and so they are increasingly popular in banking industries around the world. This paper presents a discussion of the determinants of using off-balance sheet activity in commercial banks in South Asia. The paper also presents an in-depth insight of different theoretical justifications, and empirical literature answers the whys and wherefores of off-balance sheet usage in commercial banks of south Asia. The conceptual model considers the impact of capital size, profitability, loan, credit risk, market concentration, capital adequacy, reserve requirement, real GDP, interest rate spread and inflation on off-balance sheet activities of banks. The Fixed effect and Arellano-Bond GMM method are used on the balance panel of 81 banks to achieve the research objectives of the current study. The results of the bank-specific factors on the off-balance sheet activities (OBSA) support the Market Power Theory. However, the positive and significant relationship between loan ratio and OBSA also supports the market portfolio theory, which argues that the increasing loans offer a continuous risk and can enhance credit risk. Therefore, banks must diversify their portfolios. The positive relationship between the reserve ratio and OBSA provides support for the regulatory and tax hypothesis.

Suggested Citation

  • Muhammad Farhan Basheer & Mohamad Helmi Hidthiir & Waeibrorheem Waemustafa, 2019. "Impact of Bank Regulatory Change and Bank Specific Factors Upon Off-Balance-Sheet Activities Across Commercial Banks in South Asia," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 9(4), pages 419-431.
  • Handle: RePEc:asi:aeafrj:v:9:y:2019:i:4:p:419-431:id:1811
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    Citations

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    Cited by:

    1. Azmi, Nurul Najwanie Fatiehah, 2023. "A Study on KPJ Healthcare Sdn Bhd in Malaysia Performance and Its Determinants," MPRA Paper 119810, University Library of Munich, Germany.
    2. Muhammad Farhan Basheer & Waeibrorheem Waemustafa & Mohamad Helmi Bin Hidthiir & Saira Ghulam Hassan, 2021. "Explaining the endogeneity between the credit risk, liquidity risk, and off-balance sheet activities in commercial banks: a case of South Asian economies," International Journal of Monetary Economics and Finance, Inderscience Enterprises Ltd, vol. 14(2), pages 166-187.
    3. Johan Solms, 2021. "Integrating Regulatory Technology (RegTech) into the digital transformation of a bank Treasury," Journal of Banking Regulation, Palgrave Macmillan, vol. 22(2), pages 152-168, June.
    4. Yap, Chia Ying, 2023. "Corporate Governance and Its Determinants : A study on Apex Healthcare Berhad Malaysia," MPRA Paper 119807, University Library of Munich, Germany.
    5. Tan Ke Wen, Carmen, 2023. "Company Performance and Its Determinants: A Study on New Hoong Fatt Holdings Berhad," MPRA Paper 119821, University Library of Munich, Germany.
    6. Johan Solms, 2021. "Integrating Regulatory Technology (RegTech) into the digital transformation of a bank Treasury," Journal of Banking Regulation, Palgrave Macmillan, vol. 22(3), pages 191-207, September.
    7. Azmi, Siti Nor Aisyah, 2023. "Corporate Governance and Its Determinants: A Study of Pharmaniaga Sdn Bhd," MPRA Paper 119806, University Library of Munich, Germany.

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