Performance Evaluation Of Bank Performance Essay
Performance evaluation of commercial banks in Ethiopia
Supervisor Submitted by Dr. G.S.Batra (Professor) Abey Zewge
19march 2016
1. Back ground of the study
The role of banks in any economic development is an inevitable fact as an act of channelizing the flow of funds from surplus to deficit unit for the effective utilization and mobilization of money. The sector acts as the soul of nations for the economic development to provide with a major source of finance. (Hussain
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They have been used and adopted various techniques. Financial ratio analysis, CAMEL and the later CAMELS, Data Envelopment Analysis (DEA model), are some of the methods used by scholars. This study will use the CAMEL model for evaluating bank performance. The model involves the use of many financial ratios in measuring bank performance. Compared to the other models, the CAMELS model is possibly the most accepted framework used by regulators for measuring their bank performance (Al-Tamimi, 2010;Khrawish, 2011; Kouser and Saba, 2012). Srinivas(2013) also added that, application of CAMEL model for measuring financial performance of banks is widely accepted as it focuses on measuring performance in many respects …show more content…
In this method, “each bank is assigned a uniform composite rating based on six elements.” (Trautmann, 2006). This rating is between 1 and 5. Rating of 5 indicating that, the strongest performance and risk management practices relative to the firm’s size, complexity, and risk profile; and the level of least supervisory concern. A rating of 1 indicates that, the most seriously deficient level of performance; insufficient risk management practices relative to the firm’s size, complexity, and risk profile; and the greatest supervisory concern. (Wirnkar & Tanko, 2008).
Barr et al. (2002) states that “CAMEL rating has become a concise and critical tool for examiners and regulators”. This rating ensures a bank’s healthy conditions by reviewing different aspects of a bank based on variety of information sources such as financial statement, funding sources, macroeconomic data, budget and cash
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