The RAROC as an Alternative Model of Analyzing the Lebanese Banks’ Performance and Capital AllocationViviane Y. Naimy*
Department of Accounting, Finance, and Economics, Notre Dame University, Louaize, Lebanon
- *Corresponding Author:
- Viviane Y. Naimy
Faculty of Business Administration and Economics
Notre Dame University, Louaize, Lebanon
E-mail: [email protected]
Received December 15, 2011; Accepted February 25, 2012; PublishedFebruary 28, 2012
Citation: Naimy VY (2012) The RAROC as an Alternative Model of Analyzing the Lebanese Banks’ Performance and Capital Allocation J Bus & Fin Aff 1:101. doi:10.4172/2167-0234.1000101
Copyright: © 2012 Naimy VY. This is an open-access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.
This paper attempts to depict the required equations for applying the RAROC paradigm for the Lebanese banks as it is currently the only practicable solution to capital budgeting problems. We used the RAROC as a proxy for value creation assessment. Our empirical study showed an outstanding economic profit for the home loans line of business; earnings exceeded the required return on capital by 5.2% compared to a hurdle rate of 8.5%. This line of business has positively contributed to the overall value of these banks. We were unable however to measure the diversification benefit of this line of business.