The Performance of Banks in Post-War Lebanon

28 Pages Posted: 27 May 2004

See all articles by David W. Peters

David W. Peters

Peters Financial Consulting; Bishop's University; University of Western Ontario - Faculty of Social Science

Elias Raad

Lebanese American University

Joseph F. Sinkey

Terry College of Business, The University of Georgia

Abstract

This paper analyzes the performance and balance-sheet characteristics of banks in post-war Lebanon for the years 1993 to 2000. Although we find that Lebanese banks are profitable, most of them had accounting return on assets (ROA) greater than one percent over most of our test period, they are not as profitable as a control group of banks from five other countries located in the Middle East. Bank safety and soundness in Lebanon has increased as leverage was reduced (capital adequacy improved) and a risk index indicates lower probabilities of book-value insolvency. We attribute this improved bank performance and safety to better management and to three external factors: political (cessation of war), economic (lower inflation), and regulatory (BIS capital requirements). We employ regression models that relate bank profitability ratios to various explanatory variables. We find, for example, that ROA is positively associated with lagged growth in real GDP, spread or net interest margin, and holdings of Lebanese T-bills but negatively related to bank size as measured by the natural log of total assets. As a policy implication, we recommend that Lebanese banks increase their lending to the private sector to achieve a more efficient allocation of resources and to stimulate economic growth. To help achieve this objective, Banque du Liban, the central bank, should abandon its practice of setting T-bill rates above market levels, which provides a disincentive to bank lending.

Keywords: Lebanese banks, Financial performance, Bank capital, Safety and soundness

JEL Classification: G1, G2, L1, O1

Suggested Citation

Peters, David W. and Raad, Elias A and Sinkey, Joseph F., The Performance of Banks in Post-War Lebanon. Available at SSRN: https://ssrn.com/abstract=551081

David W. Peters

Peters Financial Consulting ( email )

5 Elm Avenue, Suite 301
Toronto, Ontario M4W 1N1
Canada

Bishop's University ( email )

Lennoxville, Quebec J1M1Z7
Canada
(819) 822-9600 (Phone)

University of Western Ontario - Faculty of Social Science ( email )

London, Ontario N6A 5B8
Canada

Elias A Raad

Lebanese American University ( email )

P.O. Box 36
Chouran-Beirut 1102 2801
Byblos
Lebanon

Joseph F. Sinkey (Contact Author)

Terry College of Business, The University of Georgia ( email )

205 St. George Drive
Athens, GA GEORGIA 30606-3907
United States
7064103395 (Phone)

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