Measuring, assessing and comparing basel I, II, III on a portfolio of loans allocated by a Lebanese bank to SMEs

Abstract

Purpose: The objective of this thesis is to estimate and compare the capital requirements of an SME portfolio belonging to a Lebanese Commercial Bank under different regulatory frameworks, Basel I, Basel II and Basel III, in addition to illustrating the calculation of the capital adequacy ratio to comply with the requirements of BDL and BCCL. Design/methodology/approach: The sample used consists of a portfolio of loans granted by a Lebanese commercial bank to 1,099 different clients as of June 30, 2017. The study aims first at demonstrating the several approaches (Standardized Approach, IRB Approach, with and without supporting factor approach) that calculate the capital requirements under Basel Accords and second revealing the steps applied in order to implement the procedure following the BCCL Requirements. Findings: The findings of the study revealed that the theoretical models do not comply with the real facts. Moreover, it showed that the introduction of the supporting factor to Basel III has a positive impact on the credit lending for SMEs and a negative impact on the bank by not having sufficient capital to face stressed economy. Research limitations: One of the limitations of this study is the lack of transparency of the Lebanese banking sector. Another limitation is related to the credit risk management procedure implemented by the bank. Practical implications: The results of this research draw a comparative approach between the theoretical part (Basel Accords) and the credit risk management procedure applied in Lebanon under the BCCL requirements. Originality/value: This study is the first academic paper that tackles in details the implementation of a credit risk management procedure as per BCCL requirements, through a concrete Lebanese bank portfolio of loans.