Off-Balance Items and Their Impact on the Financial Performance Standards of the Banks: An Empirical Study on the Commercial Banks of Jordan

Abstract

The purpose of this study is to test the effect of off-balance items on the Jordanian commercial banks performance criteria. The test is based on a sample of 13 Jordanian commercial banks listed on the stock exchange of Amman during the period 2009-2016.
The depend variables of the study included the financial performance standards represented in of rate of return on assets (ROA) and return on the equity (ROE). The independent variables included the percentage of off-balance items to the total assets, in addition to three controller variables; namely credit facilities, equity ratio and the size of the bank.
The results of the study showed that the volume of Jordanian commercial banks off-balance items are high as they constitute more than one-fifth of the total assets. The results of the regression analysis showed that the off-balance items have a positive effect with statisticalsignificance on the rate of return on assets and the ROE. The size of the bank and ratio of the credit facilities granted by the banks also have is a positive and statistical significance impact on the rate of return on assets and the ROE. ROE ration has a positive impact on the assets, while ROE ratio has not impact on the rate of return of equity.
The study recommended that the Jordanian commercial banks must seek to set out limits and certain ceilings for the levels of off-balance items. The study also recommended the regulatory authorities to issue instructions and circulars governing the work of off-balance items and determines the allocations the banks must reserve to face any case where these items have to be paid.