Evaluating Performance of Commercial Banks in Pakistan: 'An Application of Camel Model'

106 Pages Posted: 16 Jan 2016

See all articles by Abdul Ishaq

Abdul Ishaq

Army Public College of Management & Sciences (APCOMS)

Abdul Karim

Army Public College of Management & Sciences (APCOMS)

Adnan Zaheer

Army Public College of Management & Sciences (APCOMS)

Sohail Ahmed

Army Public College of Management & Sciences (APCOMS)

Date Written: January 16, 2016

Abstract

Banking sector plays a vital role in the economic growth. Sound financial well-being of a bank is the assurance not only to its investors, but is equally important for the owners, personnel and the whole economy as well. As a result efforts have been made from time to time, to gauge the money related position of every bank and oversee it proficiently and viably. In this paper, an effort has been made to assess the financial execution of the ten commercial banks working in Pakistan and the data has been taken for seven years i.e. 2007-2013. Moreover, data were also assembled from articles, papers, the World Wide Web (Internet), Specialized International Journals, and relevant previous studies. In the present study an endeavor was made to evaluate the execution & financial accuracy of commercial banks using CAMEL approach. CAMEL is the supervisory and administrative framework implemented by State Bank of Pakistan. It consists of five critical indicators to assess the soundness and execution of the bank. These segments are Capital adequacy, Asset quality, Management, Earning and Liquidity. The Capital adequacy, Asset quality, Management efficiency, Earning and Liquidity are taken as independent variables (financial measures) with a view to study their impact on the firm‘s performance. Earnings per share (EPS) is used as a dependent variable. Measurable apparatuses like descriptive statistics, Correlation and regression analysis were used to gauge the execution of the banks. The results show that total deposit to equity, non-performing loans to gross advances, non-performing loans to equity, Admin Exp to Interest Income Ratio, Gross Advances to Total Deposits Ratio were significantly but negative correlated with a bank’s performance. The Return on Assets and Return on Equity were significantly and positively correlated with a bank’s performance. The interest income to total assets ratio is statistically insignificant with bank’s performance, whereas the regression result show that INT is statistically significant with bank’s performance. The cash ratio is also showing insignificant correlated bank’s performance, whereas the regression result shows that the cash ratio is statistically significant with a bank’s performance.

Keywords: Capital Adequacy, Asset Quality, Management Efficiency, earnings & Profitability, Liquidity, bank’s performance (earning per share)

Suggested Citation

Ishaq, Abdul and Karim, Abdul and Zaheer, Adnan and Ahmed, Sohail, Evaluating Performance of Commercial Banks in Pakistan: 'An Application of Camel Model' (January 16, 2016). Available at SSRN: https://ssrn.com/abstract=2716691 or http://dx.doi.org/10.2139/ssrn.2716691

Abdul Ishaq

Army Public College of Management & Sciences (APCOMS)

Khadim Hussain Road
Rawalpindi Cantt.
Pakistan

Abdul Karim

Army Public College of Management & Sciences (APCOMS)

Khadim Hussain Road
Rawalpindi Cantt.
Pakistan

Adnan Zaheer (Contact Author)

Army Public College of Management & Sciences (APCOMS) ( email )

Khadim Hussain Road
Rawalpindi Cantt.
Pakistan

Sohail Ahmed

Army Public College of Management & Sciences (APCOMS) ( email )

Khadim Hussain Road
Rawalpindi Cantt.
Pakistan

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