The Impact of derivative use on Philippine Commercial Banks financial ratios

• Main Authors: Berbano, Kevin Joseph, Coden, Justin, Gonzales, Trixie Carmela, Sebastian, Jose Gabriel
• Format: text
• Language: English
• Published: Animo Repository 2013
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/10991
• Institution: De La Salle University

With the emergence of financial innovation that tends to cater to varying levels of interests of investors, the probable impact of derivative financial instrument or, simply, derivatives has become a significant aspect of financial analysis. Derivatives are principally used as a means to hedge risk or to speculate. This study focused on the use of derivatives for speculation purposes of various publicly-listed banks in the Philippines and the relative impact of the speculative activities on the same banks financial ratios for a five-year period from 2008 to 2012. Panel data regression was used in order to obtain the impact of derivative usage by Philippine publicly-listed banks (i.e. represented by Notional Amount/ Total Assets and Notional Amount/Total Equity)as independent variables and the various financial ratios (i.e Profitability, Liquidity, Market, and Capital Management Ratios) as dependent variables. The results showed that speculative derivative transactions were significant to both Dividend Yield ratio and Capital Adequacy ratio. However, the same activity cannot accurately predict the values of the said ratios that fall under Market and Capital Management ratios, respectively. This study showed that derivative usage as a means to speculate have minimal impact on the financial ratios of publicly-listed commercial banks in the Philippines.