Developing a model to restructure the overpopulated banking industry in Lebanon

The purpose of this research is to develop a multivariate statistical model to classify the commercial banks in Lebanon in cohesive categories on the basis of their financial characteristics revealed by the financial ratios. This article uses factor analysis as a data reduction technique to reduce 52 financial ratios into seven financial ratios that adequately explain differences in performance among 50 banks in Lebanon. Implication for mergers between commercial banks is based on cluster analysis that is used to divide Lebanese banks into four performance clusters. Multidiscriminant analysis is used to examine the relative importance of the financial ratios discriminating between these clusters.