Applications of the CAMEL model
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Literature Review of Applications of the CAMEL model
Several studies provide explanations for choice of CAMEL measures: Lane et al. (1986), Looney et al. (1989), Elliot et al. (1991), Eccher et al. (1996), Gilbert et al. (2000), Lacewell (2001), Barr et al. (2002), Godlewski (2003) and Derviz et al. (2004). For examples;
Baral (2005) study the performance of joint ventures banks in Nepal by applying the CAMEL Model. His study was mainly based on secondary data drawn from the annual reports published by joint venture banks. His report analyzed the financial health of joint ventures banks in the CAMEL parameters. His findings of the study revealed that the financial health of joint ventures is more effective than that of commercial banks. Moreover, the components of CAMEL showed that the financial health of joint venture banks was not difficult to manage the possible impact to their balance sheet on a large scale basis without any constraints inflicted to the financial health.
Bodla & Verma (2006) examined the performance of SBI and ICICI through CAMEL model. Data set for the period of 2000-01 to 2004-05 were used for the purpose of the study. With the reference to the Capital Adequacy, it concluded that SBI has an advantage over ICICI. Regarding to assets quality, earning quality and management quality, it can be said that ICICI has an edge upon SBI. Therefore the liquidity position of both banks was sound and did not differ much.
Gupta and Kaur (2008) conducted a research on the sole aim of examining the performance of Indian private Sector banks by using CAMEL model and by assigning rating to the top five and bottom five banks. They rated 20 old and 10 new private sector banks based on CAMEL framework. The study covered financial data for the period of 5 years i.e. from 2003-07. The research as determined by CAMEL Model revealed that HDFC was at its higher position of all private sectors banks in India succeeded by the Karur Vyasa and the Tamilnad Mercantile Bank. However the Gobal Trust Bank and the Nedungradi Banks was considered as bad management The findings summarized that new private sector of banks have attained the higher position due to core banking, aggressive marketing strategies and high level of technology. To attain perfection banks should always concentrate on new financial assets, excellent service and customer loyalty.
Wirnkar and Tanko (2008) analyzed the adequacy of CAMEL in evaluating the performance of bank. This empirical research was implemented to find out the ampleness of CAMEL in examining the overall performance of bank, to find out the importance of each component in CAMEL and finally to look out for best ratios that bank regulators can adopt in assessing the efficiency of banks. The analysis was performed from a sample of eleven commercial banks operating in Nigeria. The study covered data from annual reports over a period of nine years (1997-2005). The analysis disclosed the inability of each component in CAMEL to congregate the full performance of a bank. Moreover the best ratios in each CAMEL parameter were determined.
Cinko & Avci (2008) noticed that globally all the banking supervisory authorities are using CAMEL rating system for many years. In this synthesis financial ratios were applied to calculate components of CAMEL ratings for the period of 1996-2000. The financial ratios were also employed to anticipate the delegation of commercial banks in 2001 to the SDIF by adopting discriminant analysis, logistic regression and neural network models. However the conclusion revealed that it was impossible to predict the transfer of a bank to SDIF by mode of CAMEL ratios.
Hays, Lurgio & Arthur (2009) have utilized CAMEL model to examine the performance of low efficiency vs. high efficiency community banks in conjunction with the logistical regression analysis. The analysis used data which are based on quarterly reports by commercial banks. The discriminant model derived from the CAMEL parameters is tested among data for 2006, 2007, 2008. Its results concluded that the model accuracy floats from approximately 88% to 96% for both original and cross-validations data sets.
Dash & Das (2009) have analyzed the Indian Banking Industry under CAMELS framework. The thesis compares the performance of public sector banks with that of private/ foreign banks. The analysis was performed from a sample of 58 banks operating in India of which 29 were public sector banks and 29 were private/foreign sector. The data used were from the audited financial statement for the financial years 2003-2008. The findings concluded that private/foreign banks have an edge over the public sector banks. The two factors of the CAMEL parameters that contribute to the best performance of the private banking/foreign were the Management Soundness and Earnings and profitability.
Agarwal & Sihna (2010) have analyzed the financial performance and thereby the sustainability of micro finance institutions (MFIs) in India by employing the CAMEL model.
Kaur (2010) have made an analysis of commercial banks operating in India with reference to CAMEL approach. In his article he has categorized the banks into Public sector Bank, Private sector Banks and Foreign Banks. He used the CAMEL analysis technique with the purpose of ranking the banks. Each component of CAMEL has been interpreted using two ratios and a final composite index has been established. The data tools which were used was a sample of 28 public sector, 26 private sector and 28 Foreign banks and the data used was in secondary nature which was collected from statistical tables related to the Banks in India in the financial year 200-01 to 2006-07. The experiment revealed that the best bank from the public sector has been awarded to Andhra Bank and State Bank of Patiala. In the category of private sector banks, Jammu and Kashmir Bank has been assigned the first rank succeeded by HDFC Bank. Among the foreign sector banks, Antwerp has bagged the first rank followed by JP Morgan Chase Bank.
Sangmi & Nazir (2010) has evaluated the financial performance of 2 top major banks in the northern India representing the biggest nationalized bank (i.e. Punjab national Bank, PNB) and the biggest private sector bank (i.e. Jamuna and Kashmir Bank, JKB). These 2 banks were selected in view their role and involvement in shaping the economic conditions of the northern India, specifically in terms of advances, deposits, man power employment, branch network etc. The research was mainly conducted on secondary data from annual reports of the respective banks. And the data used is related to five financial years (i.e. 2001-2005). The results highlighted that the position of the banks under study is sound and satisfactory as far as their capital adequacy, asset quality management capability and liquidity is implicated.
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