Health Check-up of Commercial Banks in the Framework of CAMEL: A Case Study of Joint Venture Banks in Nepal

Baral, Keshar J.

doi:10.3126/jnbs.v2i1.55

Cited by 62 publications

(63 citation statements)

References 1 publication

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…There is a tendency that gross revenue reflects the riskiness of bank assets better than traditional total assets but not as well as regulatory RWA (Estrella et al, 2000). Although the use of LVR as a measure of bank capital adequacy is not novel as it has been in use in the United States of America (see: Baral, 2005;Estrella et al, 2000); its incorporation into bank capital regulation regime by the Basel Committee on Banking Supervision (BCBS) accentuates its importance (BIS, 2010) in the determination of banks' corporate performance.…”

Section: Capital Adequacy and Bank Performancementioning

confidence: 99%

Bank Capital, Operating Efficiency, and Corporate Performance in Nigeria

Salami

Uthman

2018

Acta Universitatis Sapientiae, Economics and Business

View full text Add to dashboard Cite

This study examines the impact of bank capital and operating efficiency on the Nigerian deposit money bank financial performance with a view to resolving risk-based and non-risk-based capitals’ dichotomy existing in the bank literature. Using bank-specific data obtained from the annual reports and accounts of 15 banks listed on the Nigerian Stock Exchange between 2012 and 2015, the panel data regression analyses revealed the superiority of standard capital ratio of equity-to-total-assets, a non-risk-based capital, over other measures. While all measures, both risk-based and non-risk-based capitals, showed significantly positive effects on bank performance as measured by return-on-asset, mixed results were obtained from other indicators: return-on-equity and net-interest-margin. Overall, only equity-to-total-assets influenced all adopted performance indicators positively. It was also found that operating efficiency measured by cost-to-income ratio had negative impact on bank performance, but on the average it appeared too high. Thus, incorporating the standard capital ratio of equity-to-total assets into regulatory regime by the banks’ regulator is recommended to ensure its relevance is not overshadowed.

show abstract

Section: Capital Adequacy and Bank Performancementioning

confidence: 99%

Bank Capital, Operating Efficiency, and Corporate Performance in Nigeria

Salami

Uthman

2018

Acta Universitatis Sapientiae, Economics and Business

View full text Add to dashboard Cite

show abstract

“…Term loans are often the instrument used to channel money from the banks to businesses and asset management or loan collection is an ongoing issue with commercial banks in developing countries (Dziobek & Pazarbasioglu, 1997;Gizaw, Kebede, & Selvaraj, 2015). In the case of Nepal, commercial banking began in 1937 with the formation of Nepal Bank Ltd. (Baral, 2005), with the private sector entering the market on a large scale in the 1990-s. The Nepal Rastra Bank (NRB) serves as the national or central bank that regulates monetary policy.…”

Section: Introductionmentioning

confidence: 99%

“…With the imposition of successive standards from the Basel Committee on Banking Supervision (BCBS), popularly known as Basel I (1988), Basel II 2004 andBasel III (2010), the Nepalese commercial banks have seen increasing levels of monitoring and supervision, largely strengthening their stability (Uprety, 2013). An earlier examination of Nepalese banks using the CAMEL (capital adequacy, asset quality, management quality, earning and liquidity) framework found that joint venture banks had a fair capital base and higher liquidity than needed, resulting in lower profitability (Baral, 2005). The paid-up capital requirement (common stock) for commercial banks was Rs.…”

Section: Introductionmentioning

confidence: 99%

Caveats When increasing the Paid-Up Capital Requirement for Commercial Banks in Developing Countries: A Study of Nepalese Banks

Ruman¹,

Bajaj²

2019

JFBM

View full text Add to dashboard Cite

The minimum paid-up capital or common stock requirement has been increased for commercial banks in several developing economies, to strengthening their banking systems. This has led to consolidations and an increase in the lending capacity of banks. The literature is not clear on how the significant expansion in the size of a bank through consolidation impacts the profitability of a bank. In this work, we investigate the case of Nepalese commercial banks where paid-up capital requirements for commercial banks increased fourfold. Specifically, we investigate if operating profitability was impacted by different factors before and after the mandated increase. Design/methodology/approach: We collected financial data on six different large Nepalese banks, over a 10-year period for each bank, from their public financial statements. A panel data analysis was conducted on this sample of 60 observations, over two separate time periods: the pre-mandate period from 2007-2014 and the post-period from 2015-2017. Panel data regression was performed using the PLM package on the R data analysis platform. Findings: We find that credit exposure of banks had a positive impact on operating profit both pre and post mandate. However, non-performing loans did not impact operating profit prior to the mandated increase, but had a significant negative impact after the increase in paid-up capital requirements. Research limitations/implications: The theoretical contribution of this work is an analysis of the effect of increasing minimum capital requirements rapidly and significantly on commercial banks in a developing economy. We find that the expected consolidation of banks and increase in number of loans leads to greater credit risk assumed by the banks, even if non-performing assets were not a factor earlier, as was the case in our sample. Practical Implications: Increases in capital adequacy requirements as a result of Basel 2 and 3 must be implemented gradually, so that lending strategies by bank management have time to adapt to the larger volume of loans, especially in economies where non-performing assets are already negatively affecting financial performance. Resources should also be provided to ensure that localized knowledge specific to lending practices is not lost in the bank consolidation that follows.Social Implications: Local lending practices are an important driver of operational excellence in developing economies. Mandated mergers can lead to a loss of organizational knowledge and create a greater distance between the institution and the local borrowers in the community. This leads to greater non-performing loans which can negatively impact the operating profit of the bank. Originality/value: To the authors" knowledge, this is the first study to use panel data analysis to analyze the impact of lending practices on operating profitability both pre and post a mandated increase in paid-up capital or common stock requirements for commercial banks in a developing economy. Our findings offer prescriptive guidelines for future im...

show abstract

“…CAMEL (Capital adequacy, Assets, Management Capability, Earning and Liquidity) has been a widely used measure of financial performance. Some of the published literature on CAMEL includes Ongore and Kusa (); Abdullah Al Mamun (); Costea (); Dang () and Baral (). CAMEL consists of sets of ratios (quotients) of various items from the financial statements.…”

Section: Introductionmentioning

confidence: 99%

A Stochastic Setting to Bank Financial Performance for Refining Efficiency Estimates

Wong

Deng

Tseng

et al. 2014

Intell. Sys. Acc. Fin. Mgmt.

View full text Add to dashboard Cite

This study contributes to develop a framework to measure the financial performance of banks in a stochastic setting. The framework comprises several steps, the first of which is the development of a financial performance measurement model to evaluate a bank's financial performance using a set of factors from the CAMEL (Capital adequacy, Assets, Management Capability, Earning and Liquidity) system. Second, the stochastic setting of the efficiency measurement is handled using the data collection budget allocation approach, whereby Monte Carlo simulations are used to analyse additional generated data and a genetic algorithm is used to refine the accuracy of the efficiency estimates. The results show that the accuracy of the model is greatly improved using the proposed approach. In contrast to the conventional deterministic model, the proposed framework is more useful to managers in determining the bank's future financial operations to improve the overall financial soundness of the bank. ) should not be used; instead, they have shown that BCC formulation of Banker, Charnes, and Cooper (1984) must be applied when input and/or output include a ratio variable. Emrouznejad and Amin (2009) highlighted the convexity problem in the standard production possibility set (PPS) and suggested alternative DEA models in the presences of output ratios and/or input ratios. DEA was used by Halkos and Salamouris (2004) to derive a composite index based on the standard ratio measures of bank financial performance. Relying on this index, they evaluated the performance of Greek banks over the period 1997-1999. With regard to zero values and negative values in the DEA model, the main assumption in all DEA models was that, theoretically, all input and output values are positive, but in practice we encounter many cases that violate this term, and we ultimately have negative inputs and outputs. Among the proposed methods of dealing with negative data, the following models have been provided. Seiford and Zhu (2002) considered a positive and very small value of negative output. Another method, proposed by Halme, Pro, and Koivu (2002), offered the measurement theory and deference of scale variables and the fraction to explain the reason for negative observations and also represented a reliable method for assessing interval scale units. The modified slack-based measure model, called MSBM, was presented by Sharp, Lio, and Meng (2006). However, the latest method of behaviour with negative data was provided by Emrouznejad, Anouze, and Thanassoulis (2010); this is based on the semi-oriented radial measure model and considered some variables that are both negative and positive for DMUs. STOCHASTIC EFFICIENCY

show abstract

Health Check-up of Commercial Banks in the Framework of CAMEL: A Case Study of Joint Venture Banks in Nepal

Abstract: ABSTRACT

Cited by 62 publications

References 1 publication

Bank Capital, Operating Efficiency, and Corporate Performance in Nigeria

Bank Capital, Operating Efficiency, and Corporate Performance in Nigeria

Caveats When increasing the Paid-Up Capital Requirement for Commercial Banks in Developing Countries: A Study of Nepalese Banks

A Stochastic Setting to Bank Financial Performance for Refining Efficiency Estimates

Contact Info

Product

Resources

About