Faculty Of Business Administration and Economics

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Browsing Faculty Of Business Administration and Economics by Author "Barikian, Annie Sandra"

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    Margin Lending & Factors Influencing Debit Interest Rates: A Case Study of a Lebanese Investment Bank
    (2011) Barikian, Annie Sandra
    Investment Banking has widely spread in Lebanon during the past decade. Several banks took the lead in this field and attracted many local and international clients to either trade securities or purchase their structured products on the prevailing stock exchange markets. To facilitate the trade transactions of the clients, investment banks offer loans against shares, namely margin loans. The principle condition of the overdraft facilities is the debit interest rate which plays a big role in drawing the clients' attention or on the contrary drive them away. The principal objective of the thesis is to find out what are the factors that the management and the credit committee of an investment bank take into consideration while charging debit interest rates on different overdraft accounts. Specifically, I wanted to identify the nature of the relation between the portfolio riskiness and the debit interest rate. For this purpose, I chose a leading Lebanese investment bank to examine its decision making method in applying debit interest rates on the accounts of the clients benefitting from margin facilities. To achieve the goal of this thesis, I gathered information relating to the clients holding margin accounts with the bank mentioned above for the period staring 2007 and ending 2009. The foremost findings of the research demonstrate that there are many factors other than portfolio riskiness, such as wealth and discount and loans rate that affect the debit interest rates. It turned out that the riskiness of portfolio, measured by beta, is negatively related with the debit interest rates exceptionally during the period of time chosen for this thesis. This negative relation was due to the outburst of the financial crisis which played a big role in affecting the debit interest rates opposite to their normal direction.