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When it comes to the financial reports of commercial banks, what are off-balance-sheet activities? Give two...

When it comes to the financial reports of commercial banks, what are off-balance-sheet activities? Give two examples of off-balance-sheet activities. And explain why off-balance-sheet activities are relevant for investors of the bank.

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Answer #1

Off balance sheet items means asset or liability which do not appear on the balance sheet are are effectively company's asset / liabilities.Asset and liabilities recognised as off balance sheet items are typically one which the company is not consider as legal owner

For example. Loan which are issued by bank are some time sold off to other bank or finanacial institution. This is call securitisation. This securitise debt will be kept off balance sheet

Another common example is operating lease, where the asset is kept off balance sheet

It is relevant for the investor as it affects finanacial statement, For example contingent liability if got materialised than it may have negative impact on balance shaeet.

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