Banking in Lebanon : an empirical investigation of performance, capitalisation and mergers
This thesis investigates three aspects of Lebanese banking: Bank Perfonnance, Bank Capital and Bank Mergers. The first chapter tackles the issue of bank perfonnance, with focus on the differences between domestic and foreign banks. We study panel data of almost the entire population of Lebanese banks between 1993 and 2003 to analyse the (different) detenninants of domestic and foreign banks' profitability. Using the Fixed Effects Regression Model, we find that foreign banks are more profitable than domestic ones and factors that shape a domestic bank's profitability are different from those of a foreign bank, mainly the macroeconomic variables. Moreover, we find that subsidiaries of foreign banks perfonn better than domestic banks acquired by foreign banks. The second chapter tests the applicability of some bank capital theories. Specifically, the Too-Big-To-Fail, the signalling, and the cyclicality of bank capital theories. Besides, we test the importance of market capital requirements vs. regulatory capital requirements. We use a panel of data from almost all the population of commercial Lebanese banks between 1993 and 2003. We split the panel data "horizontally" (according to bank ownership) and "vertically" (by time), and fmd that the above mentioned theories are applicable in certain conditions and circumstance. The Too-BigTo- Fail hypothesis emerges with tighter capital requirements, foreign banks do not "signal" using their capital level and foreign bank capital is not cyclical, etc ... The third chapter deals with bank mergers in emerging markets. We are interested in: (1) finding the motives behind bank mergers, and (2) detecting the outcome of bank mergers. We study the merger experience in the Lebanese banking sector, which has witnessed a large number of bank mergers. We find that mergers in emerging markets are driven by the will of large healthy banks to acquire small underperfonning banks. Additionally, we find that the regulatory authorities play an important role in this process. Bank mergers do have a constructive effect on consolidated entities as there is an improvement in profitability and efficiency, but the credit risk deteriorates.