Open AccessImpact of Capital Adequacy on Bank Stability in Lebanon
Author(s) -
Racha Ghayad,
Diaoura
Publication year - 2022
Publication title -
al-mağallaẗ al-duwaliyyaẗ li-našr al-buḥūṯ wa-al-dirāsāt
Language(s) - English
Resource type - Journals
ISSN - 2709-7064
DOI - 10.52133/ijrsp.v3.28.13
Subject(s) - capital adequacy ratio , market liquidity , capital requirement , capital (architecture) , business , financial system , variables , stability (learning theory) , risk weighted asset , financial stability , actuarial science , economics , financial capital , finance , capital formation , human capital , statistics , mathematics , incentive , computer science , archaeology , machine learning , microeconomics , history , economic growth
This research paper intention is to study the capital adequacy requirements in the Lebanese banks and the effect of this ratio on the financial stability. Capital adequacy ratio and Altmans z-score (representing stability of banks) were collected from a sample of 8 Lebanese banks in the time between 2009 to 2018. The collected data is analyzed using SPSS software to reach conclusions that serves the topic of study. 8 simple linear regressions are conducted, among a confidence level of 95% and a level of error 5%. Each simple regression has a dependent variable (Altman’s Z-score) which represents the stability of the bank, and an independent variable (Capital adequacy ratio). The results show that almost in all banks (except bank MED) there was no significant impact of CAR on the stability of the banks. This result shows that the commitment of Lebanese commercial banks under the monitoring of the central bank was not enough to keep the financial system stable, which is a logical conclusion after what happened in 2019 where the financial system has collapsed and the commercial banks faced a severe crisis in its liquidity and reputation. Although the central bank in Lebanon was in a full compliance with Basel requirements concerning minimum capital over years, the Lebanese banking sector has collapsed and bankrupted. Also, depositors were not protected and they lost their deposited money in the bank. In other words, capital requirements in Lebanon did not prevent banks from engaging in excessive risk-taking and enhance financial stability. Thus, the problem of the Lebanese banking sector could be mismanagement, concentration of the loans portfolio in Eurobonds and with the central bank, and many other factors that caused the financial collapse in Lebanon.