The Impact of Off-Balance Sheet Items on the Financial Performance of Banks

Abstract

This study aimed to discuss the off-balance sheet items (expressed in documentary credits) in terms of concept, parties, and most important types, with a presentation of the financial performance in banks, expressed in profitability in terms of importance, sources, and the most important measurement indicators. It is also expressed as liquidity in terms of sources and the most important measurement indicators.

Then, the impact of off-balance sheet items on financial performance was tested by applying it to the Bank of Jordan during the period (2013-2022), by studying the impact of documentary credits on the rate of return on assets (R.O.A) and the rate of return on equity (R.O.E). The researcher reached a conclusion based on the results Testing the hypotheses to indicate that there is a statistically significant effect of documentary credits on the profitability of the bank in the study sample.

The researcher also tested the effect of documentary credits on liquidity by studying the effect of documentary credits on the cash balance ratio and the loan-to-deposit ratio. The researcher concluded, based on the results of hypothesis testing, that there was no statistically significant effect of documentary credits on liquidity in the bank sample of the study.

Based on the results, the researcher recommended moving towards increasing the volume of services provided in the field of documentary credits to reach the best possible levels of profitability and achieving shareholders, goals, and using available liquidity in specific employment areas to maintain appropriate levels of liquidity and achieve depositors’ goals.