Capital restructuring of medium sized bank -

Abstract

The Lebanese Banking system has always complied with Basel requirements by enforcement from the Central Bank of Lebanon. Basel guidelines have evolved over the years in response to the market evolution with the objective to stabilize the global banking system, the last and not least are Basel III which was the result of the 2008 crises. Basel II has evolved beyond capitalization and solvency to emphasize on liquidity, balance between sources and application of fund to secure stable funding and maintain an acceptable leverage, in addition to governance and risk management. Lebanese banks are in the process of complying with Basel III Capital Adequacy Requirements’ implementation timetable set by the Lebanese Central Bank’s Intermediate Circular number 282. In fact, this implementation which already started on December 31, 2012 and will be concluded on December 31, 2015 makes Lebanon one of the pioneering countries in complying with Basel III pillars. As part of making this implementation as smooth and as effective as possible, determining the optimal capital structure that produces the highest bank value is crucial at this point of time. Hence, the need to call for capital increase that would trigger a proper valuation for a point of entry to new investors to the market, to invest in Lebanese Banks, in general, and of medium size Banks similar to the size of the bank under study, in particular, before proposing an optimal equity structure that not only meets the regulatory capital requirements of Basel III but also maximizes the shareholders’ value and secure proper funding of capital charge That goes along investment in infrastructure, products to warrant solid foundation for a steady growth. It is true that valuation experts have classified valuing banks as being always difficult given the fact that estimating cash flows are not as easy as in other industries since capital expenditures and working capital are not clearly defined within the normal business operations of banks. Inherently, the