Risk and Profitability in Middle East and North Africa Banking System: An Examination of off Balance Sheet Activities

This study analyzes the role of off-balance sheet activities in banks profitability and banks risk in the Middle East and North Africa banking system. The uniqueness of this study stems from the investigation timing of and its sample data. The study covers the period covering the 2006/2007 financial crises. We form our sample from Middle East and North Africa banking system, including different countries and different bank types. The results indicate that off balance sheet activities are risk reducing as well as profit generators in Middle East and North Africa banks. The results also indicate the effect of off balance sheet activities on banks profitability is higher in the case of banks located in oil producing countries. There is no significant difference between the impact of off balance sheet activities and bank risk for banks located in oil producing countries. Furthermore, the results show that commercial bank profitability is more sensitive to off balance sheet activities. Bank risk is more sensitive to off balance sheet activities in case of Islamic banks.