Off-Balance Sheet Derivatives and Banking Risk: Indonesian Evidence

33 Pages Posted: 20 Aug 2015 Last revised: 17 Feb 2017

See all articles by Arisyi Raz

Arisyi Raz

Birmingham Business School

Agusman Agusman

Bank Indonesia

Dominic Gasbarro

Murdoch University

Gary S. Monroe

University of New South Wales (UNSW) - Australian School of Business

Date Written: August 16, 2015

Abstract

In modern banking, off-balance sheet (OBS) activity has played a greater role in banking business following rapid technological advancement and some regulatory development. Even though OBS activity has given birth to some new business prospects, appropriate risk measurement needs to be assessed to know the risk entailed in this activity. In this paper, we examine how OBS derivatives affected the risk profile of both large as well as medium and small banks in Indonesia throughout 2010-2014. We use two risk definitions for our empirical examination, i.e. institutional bank’s total risk and systematic risk. Our findings reveal that the impacts of OBS derivatives on Indonesian banking sector vary depending on the bank size. OBS derivatives reduce total risk and systematic risk of large banking firms. For small and medium banks, nonetheless, they increase both of total and systematic risks.

Keywords: bank risk, off balance sheet, derivative transactions

JEL Classification: C23, C26, G21, G28

Suggested Citation

Raz, Arisyi and Agusman, Agusman and Gasbarro, Dominic and Monroe, Gary S., Off-Balance Sheet Derivatives and Banking Risk: Indonesian Evidence (August 16, 2015). 28th Australasian Finance and Banking Conference. Available at SSRN: https://ssrn.com/abstract=2647435 or http://dx.doi.org/10.2139/ssrn.2647435

Arisyi Raz (Contact Author)

Birmingham Business School ( email )

Edgbaston Park Road
Birmingham, B15 2TY
United Kingdom

Agusman Agusman

Bank Indonesia ( email )

Jl. M.H.Thamrin No.2
Jakarta, 10350
Indonesia
62-21-3818075 (Phone)
62-21-3518629 (Fax)

Dominic Gasbarro

Murdoch University ( email )

South Street
Murdoch 6150, Western Australia
Australia

Gary S. Monroe

University of New South Wales (UNSW) - Australian School of Business ( email )

UNSW Business School
High St
Sydney, NSW 2052
Australia
+61293856443 (Phone)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
223
Abstract Views
1,007
rank
144,068
PlumX Metrics