Measuring the financial soundness and its effectiveness from the off-balance sheet

Document Type : Research Paper

Authors

1 Assistant Prof, Faculty in Banking Department, Monetary and Banking research Institute, Tehran, Iran

2 Assistant Professor, Department of Economics and Islamic Banking, Faculty of Economics, Kharazmi University

Abstract

Off-balance sheets affect the financial soundness of banks in various ways. So the items off- balance sheet can affect the financial soundness of banks by affecting credit risk, liquidity risk and profitability. In recent years, the off- balance sheet have grown. This issue has affected their financial soundness. Considering the importance of the issue, the effect of balance sheet items on the financial soundness of banks has been investigated. For this purpose, the annual data of the Iranian banking network during 2011-2022 has been used. The indexing approach has been used to design the financial soundness indicator, and the econometric approach and ARDL methodology has been used to measure the effect of off- balance sheet on the financial soundness of banks. Considering that the effect of off- balance sheet can be non-linear, in addition, off-balance sheet^2 has also been used in the model. Also, since the effect of off- balance sheet depending on the type of ownership can be different on the financial soundness, the ratio of off-balance sheet in the type of ownership is considered as a factor affecting the financial soindness of banks. Also, since the effect of off- balance sheet varies according to size of banks, , this issue has also been investigated. The results of the study show the positive effect of the ratio of off- balance sheet on the financial soindness and the negative effect of the ratio of off- balance sheet ^2 on the financial soundness.

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Iranian Economic Development Analyses
Volume 10, Issue 2
October 2024

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