Analysis of CAMEL Components and Commercial Bank Performance: Panel Data Analysis
The banking industry, one of the crucial elements in economic development, circulate funds from the surplus to the deficits to create a healthy, developing, and sustainable economic condition. Besides, the primary indicator of the soundness of the financial system is the performance of banking. Therefore, the objective of the study is to analyze Capital Adequacy, Asset Quality, Management Efficiency, Earning Quality, and Liquidity (CAMEL) towards bank performance. This study employed a static panel data model and utilized data of nine developed countries from 2013-2017. Findings. The study showed that capital adequacy and earning quality had a positive impact on bank performance and conversely asset quality,management efficiency, and liquidity has a negative effect on bank performance. Holding a high liquidity asset will reduce income as liquid assets are associated with lower rates of return. It will expect that higher liquidity will negatively affect bank performance. Therefore, the researcher can conclude that the banking industry should pay attention to CAMEL components for the maintenance and supervision of bank performance, and determinant factors are essential for sustainable economic growth.
Bank Performance, CAMEL, Commercial Bank, Panel Data
Alabede, J. O. (2012). The intervening effect of global financial condition on the determinants of bank performance: Evidence from Nigeria. Accounting and Finance Research, 1(2), 161.
Dang, Uyen. (2011) The CAMEL Rating System in Banking Supervision: A Study of Arcada University of Applied Sciences, International Business.
Flannery, M. J., Kwan, S. H., & Nimalendran, M. (2013). The 2007–2009 Financial Crisis and Bank Opaqueness. Journal of Financial Intermediation, 22(1), 55-84.
Gul, S., Irshad, F., & Zaman, K. (2011). Factors Affecting Bank Profitability in Pakistan. Romanian Economic Journal, 14(39).
Gujarati, D. N., & Porter, D. C.(1999). Essentials of Econometrics (Vol. 2). Singapore: Irwin/McGraw-Hill.
Kamau, A.W. (2013). Efficiency in the Banking Sector: An Empirical Investigation of Commercial Banks in Kenya. A thesis submitted in partial fulfilment of the Requirements of Nairobi University for the Degree of Doctor of Philosophy. Nairobi: University of Nairobi.
Khalid, A.C. (2012). The impact of Asset Quality on Profitability of Private Banks inIndia: A Case Study of JK, ICICI, HDFC & YES Banks, Journal of African Macroeconomic Review, 2(1).
Kipkelion, S. W. (2013). An Investigation on the Direct and Indirect Effect of Supply Chain. Integration on Firm Performance. International Journal of Production Economics, 119(2).
Lee, J. Y., & Kim, D. (2013). Bank Performance and Its Determinants in Korea. Japan and the World Economy, 27, 83–94. doi:10.1016/j.japwor.2013.05.001
Neumayer, E., & Plumper, T. (2016). Inequalities of Income and Inequality of Longevity: a Cross-Country Study. American Public Health Association, 106(1), 160-165.
Norris, F. H., Stevens, S. P., Pfefferbaum, B., Wyche, K. F. & Pfefferbaum, R. L. (2008). Community Resilience as a Methapor, Theory, Set of Capacities, and Strategy for Disaster Readiness. American Journal of Community Psychology, 41(1-2), 127-150.
Oloo, O. (2009). The Banking Survey 2009. Think Business. Nairobi.
Shen, C., Chen, Y., Kao, L., & Yeh, C. (2010). Bank liquidity risk and performance. International Monetary Fund, Working Paper.
Said, R. M., & Tumin, M. H. (2011). Performance and financial ratios of commercialbanks in Malaysia and China. International Review of Business Research Papers, 7(2), 157-169.
Weber, O. (2014). Equator Principles Reporting: Do Financial Institutions Meet Their Goals?.Cigi Papers Series.