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The CAMELS Rating Framework: Bank Negara Malaysia

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CAMELS FRAMEWORK
Bank Negara Malaysia has implemented CAMELS rating framework to evaluate the overall bank condition, while to figure out the strengths and weaknesses of a bank in financial, operation and management. CAMELS rating framework is inspected in five critical factors which are capital adequacy, asset quality, management efficiency and earning performance and liquidity. The CAMELS rating framework is specified based on ratio analysis of the bank’s financial statements.
The first factors of the CAMELS rating framework are capital adequacy that measured by the ratio of capital to risk weighted asset. Capital adequacy is a capital that the bank has to maintain at the minimum required level in order to cover potential losses and to protect depositor. The minimum capital requirement is determined by the extent of the risks that computed on the types and quantity inherent in the financial activities of a bank. The minimum risk weighted capital ratio of a bank must maintain is 8%. In 2014, the capital adequacy ratio (CAR) of Maybank is 16.3%, while the capital adequacy ratio (CAR) of Public Bank is 16.38%. Based on this information, we can see that Public Bank has a better ability to handle losses compare to Maybank. This information also indicates that Public Bank is able to meet its obligations relative to its exposure to risk.
Next, asset quality refers to the ratio of non-performing loans to total loan. Asset represents all assets in the bank either fixed or current,

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