Off-Balance Sheet (OBS) activities in Indonesian banks increase up to 29.5 percent per year during the 2002-2014 period. The amount is quite large with an average of 39.5 percent of the bank’s assets.
“This phenomenon shows Indonesian banks have done activities outside their conventional business,” said the lecturer of Management Department of Bogor Agricultural Institute (IPB), Wita Juwita Ermawati, S. TP., M.M., during her open examination for Doctoral Programme at Faculty of Economics and Business UGM on Tuesday (23/5).
Wita said this condition has a consequence towards the risks and performance of the banks. OBS activities or banking practices which are not reflected in the traditional form of portfolio activities can increase the risks for financial institutions. Moreover, it becomes one of the reasons of global financial crisis in 2008.
“The increase of risks potential has to be a concern for the regulator,” she added.
On the other hand, OBS activities can also decrease the risks of banks when done for hedging, not for speculation. From the performance aspect, OBS activities are potential to give additional income to the banks. However, according to Wita, the previous empirical research regarding the effect of OBS activities towards the risks or performance of banks did not show a consistent proof.
By doing research in 139 banks in Indonesia for 12 years shows the main motivation of the banks for doing OBS activities is for hedging, not for speculation in looking for profits. Therefore, Wita said the regulator party does not need to worry regarding OBS activities done by Indonesian banks, because there is no increased risk which is caused by these activities.
“The regulator does not need to worry because the banks’ motivation in doing OBS activities is not speculation which can lead to the bank’s instability or failure,” she added.