Capital adequacy of Lebanese banks. (c1995)

Abstract

The purpose of the research is to determine whether the Lebanese banking sector has an adequate level of capital which will enable it to operate in different changing economic conditions, while maintaining a certain level of guarantee and safety to customers and depositors. Before addressing the issue of capital adequacy, an overview was taken of the Lebanese economy from 1975 till 1992 with a look at the performance of the banking sector during these years. The subject on capital adequacy was divided into two parts, whereby the first part was concerned with the functions of capital; in addition, to its sources. The second part looked at the means of measuring capital from the past 80 years till now with a look at the Basle Committee Agreement that has more or less set a certain international standard for capital adequacy valuation. This research concentrated on a sample of 16 Lebanese banks chosen randomly. The balance sheets of each bank from 1983 till 1992 were used to calculate the BOL ratio for capital adequacy represented in circular number 435. Also the BA ratio and the Baz capital adequacy ratio were used to calculate the adequate level of capital for the sample banks. These ratios were compared to the one fixed by BOL and BA which is 3%, while the Baz capital adequacy ratio was compared to the 8% level of the Basle Committee Agreement. There was a plan to apply BOL circular number 1114, which is the adjusted version of the Basle Committee Agreement, but the absence of detailed balance sheets prevented the application of this circular. After calculating the three mentioned ratios from the period of 1983 till 1992, an evaluation of these ratios was conducted for each bank. It was seen that the Lebanese banks were functioning at a relatively adequate level of capital, and with the continuous supervision of BOL the banking sector could reach the 8% level set by the Basle Committee.