engleski

The impact of off-balance sheet items on the profitability of Croatian banking sector

Off-balance sheet items present the potential bank obligations which can significantly effect on bank financial position and profitability as well as the cash flows in case of the settlement. According to the regulations of Croatian National Bank, banks in Croatia are obligated to evaluate the credit risk for created off-balance sheet items in order to make provisions which are recorded as an expense and obligations in accounting records and therefore presented in bank financial statements. Although, the contracted value of off-balance sheet items are recorded in off- balance sheet records, the provisions for identified and unidentified losses on those off-balance sheet items are actually income statement item and thus can seriously effect on bank profitability. Provisions for identified losses on bank off-balance sheet items are formed based on the classification of certain off-balance sheet item into risk groups defined by the Croatian National Bank. The more riskier the off-balance sheet items is, the more provisions must be calculated on this item and therefore the more expenses must be recorded in accounting records and presented in income statement. The primary objective of this research is to determine the intensity of the relationship between off-balance sheet items and the profitability of Croatian banking sector and to identify the significance of provisions on the profitability of Croatian banking sector. The research includes the period from 2010 to 2012, because in this period the new methodology for the preparation of aggregate financial statements is applied by the Croatian National Bank. Moreover, the objective of this paper is to identify the structure of off-balance sheet items in Croatian banking sector and the circulation of these items in the period from 2010 to 2012.

Croatian banking sector ; financial statements ; off-balance sheet items ; profitability ; provisions

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