Health Check-up of the Commercial Banks in Bangladesh: An Application of CAMELS Model

Rozina Akter

doi:doi:10.11648/j.ijber.20160502.11

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Health Check-up of the Commercial Banks in Bangladesh: An Application of CAMELS Model

Rozina Akter

Published in International Journal of Business and Economics Research (Volume 5, Issue 2)

Received: 30 December 2015 Accepted: 18 January 2016 Published: 12 March 2016

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Abstract

Banking sector is the most important component of financial system. Development of banking system contributes to the stability and sustainable economic growth. This is one of the Major Service sectors in Bangladesh economy, which divided into four categories of scheduled Banks. These are Nationalized Commercial Banks (NCBs), Government Owned Development Financial Institutions (DFIs), Private Commercial Banks (PCBs), and Foreign Commercial Banks (FCBs). The aim of the research is to comparatively analyze the financial soundness of the commercial banks that operate in Bangladesh. In order to achieve this we have used one of the most popular methods for the analysis of the financial soundness of banks, namely the CAMELS framework. At present, a total of 56 banks (4 SCBs, 4 DFIs, 39 PCBs and 9 FCBs) having 8794 branches are operating in Bangladesh with Tk. 8675.2 billion total assets and Tk. 6558.7 billion deposits. Quantitative comparison has been done on the basis of CAMEL ratio. CAMEL ratios mainly indicate the adequacy of the risk based capital, non-performing loan position, expenditure-income ratio, return on assets (ROA), return on equity (ROE), net interest income (NII), writing of debt, liquid assets, excess liquidity, etc. The study compares the 4 types of bank's time series performance on the basis of selected CAMEL ratios. CAMELS rating system shows that no banks have been rated 1 or Strong; the rating of 28 banks were 2 or satisfactory; rating of 12 banks were 3 or fair; 6 banks were rated 4 or marginal and 1 bank received 5 or unsatisfactory rating.

Published in	International Journal of Business and Economics Research (Volume 5, Issue 2)
DOI	10.11648/j.ijber.20160502.11
Page(s)	19-28
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2016. Published by Science Publishing Group

Keywords

Capital Adequacy, Asset Quality, Management Efficiency, Earnings, Liquidity, Sensitivity to Market Risk, RoA, ROE, NPL, NIM

References

[1]	Bangladesh Bank Annual Report, (2006-2014), (www.bangladesh-bank.org) Bangladesh Bank Manual for Ratio Analysis and CAMEL Rating System (2006), http://ncalculators.com/statistics/correlation-coefficient-calculator.htm.
[2]	C, D, Parimal. K, G, Badal. Hasan Tuhin, Mehedi Financial Performance in Banking Sector in Bangladesh: A Comparative Study of Some Selected Private Commercial Banks. Journal of Banking & Financial Services, Department of Banking Faculty of Business Studies University of Dhaka. Vol. 5 Number 1 July 2011.
[3]	Chowdhury, T. A., & Ahmed, K. (2009), “Performance Evaluation of Selected Commercial Banks in Bangladesh”, International Journal of Business and Management, 4(4), 86-97.
[4]	Khan, A. R. (2009), “Sources and uses of funds, performance evaluation and bank failure”, Bank Management: A fund Emphasis, (2nd edition), Dhaka: Decent Book House, pp. 51-68.
[5]	CHIEN, T., DANW, S. Z. (2004), “Performance Measurement of Taiwan Commercial Banks”, International Journal of Productivity and Performance Management, Vol. 53(5), pp. 425-434.
[6]	MAZER, M., ISLAN (2003), “Development and Performance of Domestic and Foreign Banks in GCC Countries”, Managerial Finance, Vol. 29(2), pp. 42-71.
[7]	MEDHAT, T. (2006), “A Comparison of Financial Performance in the Banking Sector: Some Evidence from Oman Commercial Banks”, http://www.eurojournals.com
[8]	Cole, R. A., and J. W. Gunther. (1998). "Predicting Bank Failures: A Comparison of On- and Off-Site Monitoring Systems." Journal of Financial Services Research 13, pp. 103-117.
[9]	Reserve Bank of India, (2008) Efficiency, Productivity and Soundness of the Banking Sector, p.401, 419. http://rbi.org.in/scripts/publicationsview.aspx?id=10496 5 0.
[10]	Alam, Hassan Mobeen, Raza, Ali & Akram, Muhammad, 2011. A Financial Performance Comparison of Public Vs Private Banks: The Case of Commercial Banking Sector of Pakistan’, International Journal of Business and Social Science, vol. 2, no. 11, pp. 56-64.
[11]	Baral, JK, 2005. Health Check-up of Commercial Banks in the Framework of CAMEL: A Case Study of Joint Venture Banks in Nepal’, Journal of Nepalese Business Studies, vol. 2, no. 1, pp. 41-55.
[12]	Bodla, BS & Verma, R., 2006. Evaluating Performance of Banks through CAMEL Model: A Case Study of SBI and ICICI’, The ICFAI Journal of Bank Management, vol. 5, no. 3, pp. 49-63.
[13]	Christopoulos, AG, Mylonakis, J & Diktapanidis, P., 2011. Could Lehman Brothers Collapse be Anticipated? An Examination Using CAMELS Rating System’, International Business Research, vol. 4, no. 2, pp. 11-19.
[14]	Dahiyat, Ahmed., 2012. The Application of CAMELS Rating System to Jordanian Brokerage Firms’, International Research Journal of Finance and Economics, vol. 88, pp. 16-23.
[15]	Dang, Uyen, 2011. The CAMEL Rating System in Banking Supervision a Case Study, Dissertation, Arcada University of Applied Science, International Business, viewed 1 August 2014, .
[16]	Gupta, R. & Kaur, S., 2008. A CAMEL Model Analysis of Private Sector Banks in India’, Journal of Gyan Management, vol. 2, no. 1, pp. 3-8.
[17]	Padmanabhan Working Group, 1995. On-site Supervision of Banks’, Reserve Bank of India. Sangmi, M, Tabassum, N., 2010. Analyzing Financial Performance of Commercial Banks in ndia: Application of CAMEL Model’, Pakistan Journal Commercial Social Sciences, vol. 4, no. 1, pp. 40-55.
[18]	Sarker, A., 2005. CAMEL Rating System in the Context of Islamic Banking: A Proposed ‘S’for Shariah Framework’, Journal of Islamic Economics and Finance, vol. 1, no. 1, pp. 78-84.

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APA Style

Rozina Akter. (2016). Health Check-up of the Commercial Banks in Bangladesh: An Application of CAMELS Model. International Journal of Business and Economics Research, 5(2), 19-28. https://doi.org/10.11648/j.ijber.20160502.11

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ACS Style

Rozina Akter. Health Check-up of the Commercial Banks in Bangladesh: An Application of CAMELS Model. Int. J. Bus. Econ. Res. 2016, 5(2), 19-28. doi: 10.11648/j.ijber.20160502.11

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AMA Style

Rozina Akter. Health Check-up of the Commercial Banks in Bangladesh: An Application of CAMELS Model. Int J Bus Econ Res. 2016;5(2):19-28. doi: 10.11648/j.ijber.20160502.11

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@article{10.11648/j.ijber.20160502.11,
  author = {Rozina Akter},
  title = {Health Check-up of the Commercial Banks in Bangladesh: An Application of CAMELS Model},
  journal = {International Journal of Business and Economics Research},
  volume = {5},
  number = {2},
  pages = {19-28},
  doi = {10.11648/j.ijber.20160502.11},
  url = {https://doi.org/10.11648/j.ijber.20160502.11},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijber.20160502.11},
  abstract = {Banking sector is the most important component of financial system. Development of banking system contributes to the stability and sustainable economic growth. This is one of the Major Service sectors in Bangladesh economy, which divided into four categories of scheduled Banks. These are Nationalized Commercial Banks (NCBs), Government Owned Development Financial Institutions (DFIs), Private Commercial Banks (PCBs), and Foreign Commercial Banks (FCBs). The aim of the research is to comparatively analyze the financial soundness of the commercial banks that operate in Bangladesh. In order to achieve this we have used one of the most popular methods for the analysis of the financial soundness of banks, namely the CAMELS framework. At present, a total of 56 banks (4 SCBs, 4 DFIs, 39 PCBs and 9 FCBs) having 8794 branches are operating in Bangladesh with Tk. 8675.2 billion total assets and Tk. 6558.7 billion deposits. Quantitative comparison has been done on the basis of CAMEL ratio. CAMEL ratios mainly indicate the adequacy of the risk based capital, non-performing loan position, expenditure-income ratio, return on assets (ROA), return on equity (ROE), net interest income (NII), writing of debt, liquid assets, excess liquidity, etc. The study compares the 4 types of bank's time series performance on the basis of selected CAMEL ratios. CAMELS rating system shows that no banks have been rated 1 or Strong; the rating of 28 banks were 2 or satisfactory; rating of 12 banks were 3 or fair; 6 banks were rated 4 or marginal and 1 bank received 5 or unsatisfactory rating.},
 year = {2016}
}

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TY - JOUR
T1 - Health Check-up of the Commercial Banks in Bangladesh: An Application of CAMELS Model
AU - Rozina Akter
Y1 - 2016/03/12
PY - 2016
N1 - https://doi.org/10.11648/j.ijber.20160502.11
DO - 10.11648/j.ijber.20160502.11
T2 - International Journal of Business and Economics Research
JF - International Journal of Business and Economics Research
JO - International Journal of Business and Economics Research
SP - 19
EP - 28
PB - Science Publishing Group
SN - 2328-756X
UR - https://doi.org/10.11648/j.ijber.20160502.11
AB - Banking sector is the most important component of financial system. Development of banking system contributes to the stability and sustainable economic growth. This is one of the Major Service sectors in Bangladesh economy, which divided into four categories of scheduled Banks. These are Nationalized Commercial Banks (NCBs), Government Owned Development Financial Institutions (DFIs), Private Commercial Banks (PCBs), and Foreign Commercial Banks (FCBs). The aim of the research is to comparatively analyze the financial soundness of the commercial banks that operate in Bangladesh. In order to achieve this we have used one of the most popular methods for the analysis of the financial soundness of banks, namely the CAMELS framework. At present, a total of 56 banks (4 SCBs, 4 DFIs, 39 PCBs and 9 FCBs) having 8794 branches are operating in Bangladesh with Tk. 8675.2 billion total assets and Tk. 6558.7 billion deposits. Quantitative comparison has been done on the basis of CAMEL ratio. CAMEL ratios mainly indicate the adequacy of the risk based capital, non-performing loan position, expenditure-income ratio, return on assets (ROA), return on equity (ROE), net interest income (NII), writing of debt, liquid assets, excess liquidity, etc. The study compares the 4 types of bank's time series performance on the basis of selected CAMEL ratios. CAMELS rating system shows that no banks have been rated 1 or Strong; the rating of 28 banks were 2 or satisfactory; rating of 12 banks were 3 or fair; 6 banks were rated 4 or marginal and 1 bank received 5 or unsatisfactory rating.
VL - 5
IS - 2
ER -

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Rozina Akter

Department of Business Administration, Faculty of Business and Economics, Daffodil International University, Dhaka, Bangladesh

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APA Style

Rozina Akter. (2016). Health Check-up of the Commercial Banks in Bangladesh: An Application of CAMELS Model. International Journal of Business and Economics Research, 5(2), 19-28. https://doi.org/10.11648/j.ijber.20160502.11

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ACS Style

Rozina Akter. Health Check-up of the Commercial Banks in Bangladesh: An Application of CAMELS Model. Int. J. Bus. Econ. Res. 2016, 5(2), 19-28. doi: 10.11648/j.ijber.20160502.11

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AMA Style

Rozina Akter. Health Check-up of the Commercial Banks in Bangladesh: An Application of CAMELS Model. Int J Bus Econ Res. 2016;5(2):19-28. doi: 10.11648/j.ijber.20160502.11

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@article{10.11648/j.ijber.20160502.11,
  author = {Rozina Akter},
  title = {Health Check-up of the Commercial Banks in Bangladesh: An Application of CAMELS Model},
  journal = {International Journal of Business and Economics Research},
  volume = {5},
  number = {2},
  pages = {19-28},
  doi = {10.11648/j.ijber.20160502.11},
  url = {https://doi.org/10.11648/j.ijber.20160502.11},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijber.20160502.11},
  abstract = {Banking sector is the most important component of financial system. Development of banking system contributes to the stability and sustainable economic growth. This is one of the Major Service sectors in Bangladesh economy, which divided into four categories of scheduled Banks. These are Nationalized Commercial Banks (NCBs), Government Owned Development Financial Institutions (DFIs), Private Commercial Banks (PCBs), and Foreign Commercial Banks (FCBs). The aim of the research is to comparatively analyze the financial soundness of the commercial banks that operate in Bangladesh. In order to achieve this we have used one of the most popular methods for the analysis of the financial soundness of banks, namely the CAMELS framework. At present, a total of 56 banks (4 SCBs, 4 DFIs, 39 PCBs and 9 FCBs) having 8794 branches are operating in Bangladesh with Tk. 8675.2 billion total assets and Tk. 6558.7 billion deposits. Quantitative comparison has been done on the basis of CAMEL ratio. CAMEL ratios mainly indicate the adequacy of the risk based capital, non-performing loan position, expenditure-income ratio, return on assets (ROA), return on equity (ROE), net interest income (NII), writing of debt, liquid assets, excess liquidity, etc. The study compares the 4 types of bank's time series performance on the basis of selected CAMEL ratios. CAMELS rating system shows that no banks have been rated 1 or Strong; the rating of 28 banks were 2 or satisfactory; rating of 12 banks were 3 or fair; 6 banks were rated 4 or marginal and 1 bank received 5 or unsatisfactory rating.},
 year = {2016}
}

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