camels rating

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Prepared by:Nazmus SakibID- 51326090Department of Banking and InsuranceUniversity of Dhaka

Measuring Financial Performance Based on Camels rating on FIVE

selected commercial banks in Bangladesh

Camels Rating Camels rating is a supervisory rating system originally developed in the U.S. to classify a bank's overall condition. It's applied to every bank and credit union around the world and is also implemented by various banking supervisory regulators.

Key Components of CAMELS RatingCAMELS is an acronym for six components of bank safety and soundness. Those include – C = Capital AdequacyA = Asset QualityM = Management QualityE = EarningL = Liquidity andS = Sensitivity to market risk

Financial Analysis We have chosen the CAMELS model for financial analysis purpose. It measures the performance of the banks from each parameter i.e. Capital, Assets, Management, Earnings, Liquidity and Sensitivity to Market risks.

Capital Adequacy

Bank

Capital Adequacy Ratio

2013 2014 2015 Average Rank

Premier Bank 11.46% 13.31% 9.11% 12.29% 2

Bank Asia 11.05% 11.32% 13.31% 11.89% 4

Dhaka Bank 12.18 11.20% 10.46% 11.28% 5

Mercantile Bank 11.43% 12.95% 11.87% 12.08% 3

Prime bank 12.04% 12.71% 12.74% 12.49% 1

Bank

Equity to Total Assets


Premier Bank 8.97% 8.01% 7.79% 8.25% 4

Bank Asia 8.92% 9.22% 8.45% 8.86% 2

Dhaka Bank 8.23% 8.02% 7.59% 7.94% 5

Mercantile Bank 8.68% 8.02% 8.48% 8.39% 3

Prime bank 9.44% 9.59% 10.47% 9.83% 1

Composite Capital Adequacy

Bank

Capital Adequacy

RatioDebt-Equity Ratio Equity to Total Assets Group Rank

Average Rank Average Rank Average Rank Average Rank

Premier Bank 12.29% 2 10.63 3 8.25% 4 3.00 4

Bank Asia 11.89% 4 10.28 2 8.86% 2 2.67 3

Dhaka Bank 11.28% 5 11.18 5 7.94% 5 5.00 5

Mercantile Bank 12.08% 3 9.16 1 8.39% 3 2.33 2

Prime bank 12.49% 1 10.91 4 9.83% 1 2.00 1

Analysis and Interpretation: On the basis of group averages of three sub-parameters of capital adequacy, Prime bank was at the top position with group average of 2.00, followed by Mercantile Bank of 2.33 and Bank Asia of 2.67 on second and third positions respectively.

Assets Quality

Bank

NPLs to total loans


Premier Bank 5.73% 9.00% 6.64% 7.12% 5

Bank Asia 5.60% 5.31% 4.26% 5.05% 3

Dhaka Bank 4.15% 5.49% 4.66% 4.74% 1

Mercantile

Bank

4.77% 5.10% 4.95% 4.94% 2

Prime Bank 5.09% 7.61% 7.82% 6.84% 4

Bank

Total Investments to Total Assets


Premier Bank 22.51% 18.58% 18.58% 19.89% 3

Bank Asia 20.71% 21.16% 20.92% 20.90% 4

Dhaka Bank 12.98% 12.40% 11.79% 12.39% 1

Mercantile

Bank

20.77% 19.10% 18.50% 19.45% 2

Prime bank 23.34% 28.49% 24.87% 26.90% 5

Composite Assets QualityBank

NPLs to total loansTotal Investments to Total

AssetsGroup Rank

Average Rank Average Rank Average Rank

Premier Bank 7.12% 5 19.89% 3 4.00 4

Bank Asia 5.05% 3 20.90% 4 3.50 3

Dhaka Bank 4.74% 1 12.39% 1 1.00 1

Mercantile Bank 4.94% 2 19.45% 2 2.00 2

Prime bank 6.84% 4 26.90% 5 4.50 5

Analysis and Interpretation: On the basis of group averages of Assets Quality, Dhaka Bank was at the top position with group average of 1.00, followed by Mercantile Bank of 2.00 and Bank Asia of 3.50 on second and third positions respectively.

Management Quality

BankCredit Deposit Ratio


Premier Bank 70.76% 77.21% 83.87% 77.28% 4

Bank Asia 78.59% 82.92% 80.31% 80.60% 3

Dhaka Bank 84.22% 81.26% 84.74% 83.40% 1

Mercantile Bank 77.02% 83.33% 81.58% 80.64% 2

Prime bank 76.07% 71.94% 77.95% 75.32% 5

BankProfit per Employee


Premier Bank 1.19 1.34 1.43 1.32 5

Bank Asia 3.38 3.26 3.27 3.30 1

Dhaka Bank 2.10 2.14 2.30 2.18 3

Mercantile Bank 2.35 2.25 1.86 2.15 4

Prime bank 2.76 2.15 2.01 2.30 2

Composite of Management Quality

BankCredit Deposit Ratio Profit per Employee Group Rank

Average Rank Average Rank Average Rank

Premier Bank 77.28% 4 1.32 5 4.5 4

Bank Asia 80.60% 3 3.30 1 2.00 1

Dhaka Bank 83.40% 1 2.18 3 2.00 1

Mercantile Bank 80.64% 2 2.15 4 3.00 2

Prime bank 75.32% 5 2.30 2 3.50 3

Analysis and Interpretation: On the basis of group averages of Management Quality, Dhaka Bank was at the top position with group average of 2.00, followed by Mercantile Bank of 3.00 and Prime Bank of 3.50 on second and third positions respectively.

EarningsBank Return on Equity(%)


Premier Bank 9.84% 9.75% 9.39% 9.66% 4

Bank Asia 10.55% 14.09% 14.36% 13.00% 2

Dhaka Bank 16.21% 15.92% 10.74% 14.29% 1

Mercantile Bank 16.84% 9.11% 9.60% 11.85% 3

Prime bank 8.35% 10.08% 8.41% 8.94% 5

Bank Cost to Income Ratio2013 2014 2015 Average Rank

Premier Bank 64.64 64.14 63.20 64.00 5

Bank Asia 36.53 40.34 41.84 39.57 1

Dhaka Bank 42.38 44.47 47.77 44.87 2

Mercantile Bank 41.66 44.84 50.46 45.65 3

Prime bank 41.98 48.29 51.08 47.11 4

Composite of EarningsBank

Return on

Equity(%)Return on Assets (%)

Cost to Income

RatioGroup Rank

Average Rank Average Rank Average Rank Average Rank

Premier Bank 9.66% 4 0.84% 5 64.00 5 4.66 5

Bank Asia 13.00% 2 1.16% 2 39.57 1 1.66 2

Dhaka Bank 14.29% 1 1.19% 1 44.87 2 1.33 1

Mercantile

Bank

11.85% 3 0.96% 3 45.65 3 3.00 3

Prime bank 8.94% 5 0.85% 4 47.11 4 4.33 4

Analysis and Interpretation: On the basis of group averages of Earning, Dhaka Bank was at the top position with group average of 1.33, followed by Bank Asia of 1.66 and Mercantile Bank of 3.00 on second and third positions respectively.

LiquidityBank Liquid Assets to Total Assets(%)


Premier Bank 6.14% 12.14% 7.59% 8.62% 2

Bank Asia 6.71% 6.56% 10.84% 8.03% 4

Dhaka Bank 10.29% 14.41% 14.21% 12.97% 1

Mercantile Bank 7.80% 8.07% 9.86% 8.57% 3

Prime bank 7.63% 7.47% 7.89% 7.66% 5

Sensitivity to Market RiskBank Price earnings ratio (times)


Premier Bank 7.12 6.33 5.24 6.23 5

Bank Asia 12.04 5.74 5.38 7.72 2

Dhaka Bank 5.28 5.13 8.57 6.32 4

Mercantile Bank 5.57 8.52 5.68 6.59 3

Prime bank 14.57 8.43 8.71 10.57 1

Composite Ranking (Overall Performance)

Bank C A M E L S Average Rank

Premier Bank 4 4 4 5 5 5 4.5 5

Bank Asia 3 3 1 2 3 2 2.33 2

Dhaka Bank 5 1 1 1 1 4 2.16 1

Mercantile Bank 2 2 2 3 2 3 2.5 3

Prime bank 1 5 3 4 4 1 3 4

In the study using CAMELS model, it is revealed that Dhaka Bank secured the top position in terms of overall composite ranking followed by Bank Asia and Mercantile Bank on second and third positions respectively. Premier Bank and Prime Bank secured the most bottom position.

Objectives, findings & recommendationObjective 1: To explore about CAMELS rating framework.Finding 1: The CAMELS rating system is to evaluate a bank’s level of risk and overall condition. Study find out the camels rating framework through capital, assets quality, management quality, earnings, liquidity and sensitivity to market risk of the bank.Recommendation 1: Bangladesh Bank or regulatory authority should regularly practice camels rating to measure the financial performance of banks as well as to mitigate adverse situation of the financial institution.Objective 2: To understand the financial performance of the banks.Objective 2.1: To understand the capital adequacy of the banks. Finding 2.1: Average capital adequacy ratio is finds that Prime bank ranked on the top position with highest CAR of 12.49 followed by Premier Bank of 12.29, Mercantile Bank of 12.08. and Dhaka Bank scored the lowest position. All the five banks have succeeded in maintaining CAR at a higher level than the prescribed level 10%.

Objectives, findings & recommendationRecommendation 2.1: The studies have shown that Dhaka bank,

capital adequacy ratio is continuously decreasing which are not a good sign for a bank so they have to improved capital adequacy ratio.Objective 3: To analyze 5 banks to get the desired results by using CAMELS as a tool of measuring performance.Finding 3: In the study using CAMELS model, it is revealed that Dhaka Bank secured the top position in terms of overall composite ranking followed by Bank Asia and Mercantile Bank on second and third positions respectively. Premier Bank and Prime Bank secured the most bottom position.Recommendation 3: In the study using camels model, it is revealed that Premier Bank and Prime Bank Unsatisfactory position. Such performance indicates weakness, threatens the viability of the institution. So bank management should be aware of it.

camels rating

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