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Camels Framework Of Banks Essay

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3.0 Discuss the CAMELS framework of the banks
CAMELS is a ratio-based model used to measure the financial condition of the banks from each different parameter. CAMELS represent the first words of the models which the C stand for capital adequacy, A means asset quality, M is management efficiency, E for earning performance, L is liquidity and S is for sensitivity to the market. Besides, this framework has been applied by Bank Negara Malaysia to evaluate the financial condition and performance of all commercial bank and financial institution to see whether the banks are doing well or not (LEE, 2012). Hence, for the following details we will evaluate more about the performance of Public Bank Berhad and Hong Leong Bank Berhad in the year 2015 based on CAMELS approach.
3.1 Capital adequacy
Capital adequacy is a measure of financial strength used to cushion operation and abnormal losses. In other word, how much capital a bank should put aside as a proportion of risky asset which will help to reduce default risk. The indicator of capital adequacy most widely used is risk weighted capital ratio which is to protect depositor and ensure the financial system stable and efficient (Singh, n.d.). According to Basel III, a minimum of 8% is required from risk weighted capital ratio otherwise it would reflect that the bank have insufficient fund to operate. For sure, if the bank wants to engage in business, they must have high capital adequacy. Risk weighted capital

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