Financial derivatives and the commercial banks performance in UAE (original) (raw)
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The commercial banks are working on innovative ways to achieve profits instead of traditional methods, and hedging of systemic risks by using financial derivatives because of the uncertainty and high volatility in the global and domestic financial markets especially in Golf Cooperation Council " GCC " countries. In this paper we investigated the effect of financial derivatives use on the performance of commercial banks in the " GCC " countries, where the study included nineteen banks distributed among the countries (Bahrain, Emirate, Qatar and Saudi) during the period 2000-2013, using the regression model with unbalanced panel data. We concluded the acceptance of dual fixed effects model shows that the relationship varies from one bank to another, due to the different characteristics of each bank and each country. That the use of derivatives is working on the reduction of no systemic risks, which improves the performance of commercial banks especially in the crisis period.
Research Journal of Finance and Accounting, 2015
The commercial banks are working on innovative ways to achieve profits instead of traditional methods, and hedging of systemic risks by using financial derivatives because of the uncertainty and high volatility in the global and domestic financial markets especially in Golf Cooperation Council “GCC” countries. In this paper we investigated the effect of financial derivatives use on the performance of commercial banks in the “GCC” countries, where the study included nineteen banks distributed among the countries (Bahrain, Emirate, Qatar and Saudi) during the period 2000-2013, using the regression model with unbalanced panel data. We concluded the acceptance of dual fixed effects model shows that the relationship varies from one bank to another, due to the different characteristics of each bank and each country. That the use of derivatives is working on the reduction of no systemic risks, which improves the performance of commercial banks especially in the crisis period. Keywords: com...
Determinants and Outcomes of Financial Derivatives: Empirical Evidence from Pakistani Banks
Journal of Asian Finance, Economics and Business, 2021
The increased risk in financial firms, due to Global Financial Crises and high international trade activities, has encouraged banks to use derivatives for both managing their financial risk and earning non-operating income simultaneously. The present study brings new evidence in the existing literature by determining the drivers behind financial derivative usage in Pakistani banks for 2011 till 2016. Moreover, the paper examines how risk plays a moderating role in determining the relationship between derivative usage and bank value. While assessing the determinants, a two-stage test has conducted, first, the logit regression was used to test the drivers behind the derivative usage in banks. Second, Tobit regression was run to analyze the factors leading to determine the extent of derivative usage. The findings demonstrate that Pakistani banks are using derivatives for both risk management and speculative motive as they are customers and users of derivatives at the same time. Empirical results, regarding moderating role of risk on the value implications of derivative usage, provide mixed findings as derivative usage gives value premium in case of non-systematic risk and foreign exchange risk. Whereas value discounts have been observed for cases where systematic risk is high and managers try to earn non-operating income from speculative activities.
International Journal of Management and Enterprise Development, 2019
In the financial markets, the financial institutions and banks use the financial derivatives for hedging against systemic risks, for speculation or/and arbitrage. This study aims to investigate mainly whether the use of financial derivatives makes banks reducing their systemic risks. Using the data of 19 commercial banks from GCC during the period from 2000 to 2013, the main results reveal that the use of financial derivatives decrease banks systemic risks, while the performance indexes effect is not obvious, it differs between a negative and a positive effect. However, banks use derivatives with the increase in off-balance sheet to hedge their risks. Finally, the rise of GDP does not give a safety feeling to managers of banks, so they tend to use derivatives to hedge, in addition, they use them also with the increase in inflation and unemployment rates for hedging purposes.
Impact of Derivatives on Financial Services Sector and Risk Management
2013
The paper examines risk associated with financial services sector (FSS) and suitability of derivatives to manage these risks in Pakistan. Derivatives enable firms to hedge against systemic and non-systemic risks. The main types of derivatives are: forwards, futures, options and swaps. To develop derivatives market in Pakistan, The Financial Derivatives Business Regulations (FDBR) have been formulated in exercise of the power derived by State Bank of Pakistan under Banking Companies Ordinance 1962 and Foreign Exchange Regulations Act 1947, to permit, regulate and supervise financial institutions entering into derivative transactions.. Using SBP/FDBR publications and the literature, the study concludes that derivatives products are suitable for managing FSS risk exposures; derivatives provide massive economic benefits, if properly engaged; and, development of derivatives market in Pakistan is necessary to enhance liquidity and mobilise the required capital for economy growth. The stud...
Financial Derivatives and Its Effects on Financial Performance of Deposit Money Banks in Nigeria
This study examined the relationship between financial derivatives and financial performance of deposit money banks (DMBs) in Nigeria from the period of 2013 to 2022 (10years). Financial derivatives [proxied with Financial Liabilities Derivatives (FLD), Foreign Exchange Derivatives (FED), Trading Income on Derivatives (TID), Loan and Advance to Customers (LADC) and Bank Size (BS)] (independent variables) and financial performance [proxied with Return on Assets (ROA)]. The Ex-Post Facto research design was used. Ex-Post Facto research design aids in answering the who, what, when, where, and how questions linked with a certain study problem. The ex-post facto research design is used to acquire information on the current state of a phenomenon and to define 'what exists' in terms of variables or conditions in a setting that is specifically relevant to the issue under investigation. Data on financial derivatives and financial performance were obtained from the annual reports and accounts of ten (10) DMBs listed in Nigeria Exchange Group that has international presence. The data set was described using descriptive statistics, followed by the correlation analysis was used to ascertain the co-movement of the independent variables in relation to the dependent variable and several diagnostics tests. Since the data are panel series that the unit root test was conducted to ascertain if the data are stationary in order to have accurate regression result followed by single equation co-integration test while the Multiple Regression analysis were employed with the aid of E-VIEW version 9.0 for the purpose of testing the research hypotheses raised in chapter one. It evident that measures of financial derivatives used has mixed effects on ROE of DMBs in Nigeria. However, majority of the independent variables such TID, LADC and BS has significant effects on ROE of DMBs while FLD and FED established an insignificant effects on ROE of DMBs in Nigeria. Hence, the study concluded that a financial derivative has significant effects on financial performance of DMBs in Nigeria. The study recommended that DMBs in Nigeria should minimize their financial derivative liabilities holdings, since it has detrimental effect on their ROE. Limit their financial derivative liabilities and ensure that financial derivative assets are better utilized.
International Journal of Critical Accounting, 2014
This comparative study examines the reporting of derivatives according to hedge accounting and the effect of derivatives on the financial positions of the banks in the European Union and Turkey. We found that all of the banks in Europe examined in the study reported their hedge purpose derivatives according to hedge accounting. In contrast, only a small portion of banks in Turkey prefer to use hedge accounting. We conclude that avoiding volatility of reported earnings can be the most important motive to apply hedge accounting for banks in Europe given their high volume of derivatives. Since the volume of derivatives is very low for banks in Turkey, volatility of earnings is not a concern. However, the burdensome requirements for hedge accounting in International Accounting Standards (IAS) 39 and lack of qualified personnel with knowledge of derivative accounting may be the reason why they do not utilise its treatment.
British Journal of Economics, Management & Trade, 2017
There is a general perception that financial derivatives have significant impact on firm performance when they are used to hedge financial risks. The study attempted to examine the effect of the use of forwards, futures, options and swaps to hedge interest rate and foreign exchange rate risks of 5 financial and 5 nonfinancial firms selected from the UK FTSE 100 index, between the years 2005-2014, with the objectives of supporting or refuting extant literature on the benefits of hedging, testing the impact of hedging on return on assets and capital employed, as well as revealing which financial derivative assert the highest influence in the period. The panel least squares (PLS) regression analysis was used on a balanced panel dataset of 100 observations. The results revealed the following: (1) financial firms tend to hedge more of interest rate risks while nonfinancial firms hedge more of foreign exchange rate risks;(2) hedging interest rate risks by both groups with the use of a combination of forwards and futures derivatives was found to be positive and statistically significant with return on assets, hence increases firm performance, but directly has a