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Somaya El Ahmadieh

Diplômé DBA - 2017

Titre de thèse

THE POTENTIAL IMPACT OF NON-INTEREST INCOME RATIO AND OPERATING EXPENSE RATIO ON THE RELATION BETWEEN CAPITAL REQUIREMENTS AND LENDING SPREAD RATIO: AN EXAMINATION IN LEBANESE COMMERCIAL BANKS

Superviseur(s)

Lamya Kermiche
Purpose The purpose of this study is to investigate the moderating role of Operating Expense Ratio (OER) and Non-Interest Income Ratio (NIIR) on the relation between Capital Adequacy Ratio (CAR) and Lending Spread Ratio (LSR) among Lebanese commercial banks.Design/methodology/approach This study conducts a literature review to highlight the original concepts concerning CARs, LSR, NIIR, and OER. Relatively, no research has been done; so, this study presents evidence on this count and intends to fill this gap in literature. King (2010) model stipulates that the cost of implementing higher CARs will be transformed to the borrowers in the form of higher LSR, assuming all else equal. This study extends this concept to address the moderating effect of NIIR and OER on this model, specifically in the context of Lebanese banks. The researcher proceeds to perform a simple and multiple regression analysis over the period 2005 till 2014. Findings The findings suggest that King Model doesn’t hold true where Non-Interest Income Ratio and Operating Expense Ratio exhibits a significant moderation on the relationship. Furthermore, King’s model is not supported in years prior to the recent financial crises. Three hypotheses are tested; the findings partially support these hypotheses.Research limitations/implications This thesis focuses on the debate of how “NIIR and OER” affects the CAR-LSR relationship in Lebanese commercial banks. The sample was not large enough; accordingly, a considerable bias may exist. To generalize the study, an extensive examination should be conducted and extended to other countries to understand it in depth and validate our findings. Practical implications The empirical result presents precious realistic insights for both management and policymakers; as the model used could be helpful for managers as well as policymakers to draw the reasonable strategies that must be followed to lessen the impact of higher CARs on the end customer, taking into consideration the elasticity of loan demand and the environment competition surrounding Lebanese banking sector. Furthermore, as Lebanon is characterized by its political and economic instability, the financial sector is exposure to risks; this study provides a long term strategies to be applied, the outcome of implementing these strategies will positively impact the Lebanese banking sector as well as the economy sector. Originality/value This study has been conducted for the first time in Lebanese commercial banks by using two stages: regression analysis and King (2010) model.Keywords: Capital Adequacy Ratios, Lending Spread Ratio, Non-Interest Income Ratio, Operating Expense Ratio.