CAMEL MODEL ANALYSIS AND DISCRIMINANT ANALYSIS OF COMMERCIAL BANKS’ PERFORMANCE IN GUYANA, SOUTH AMERICA
Keywords:
CAMEL Model, Prudential Ratios, Discriminant Analysis, Indigenous Banks, and Foreign Banks.
Abstract
The study evaluates the performance of commercial banks in Guyana using prudential ratios that capture the five essential dimensions of a bank’s operation. It applies the CAMEL rating system and Linear Discriminant Analysis on quarterly prudential ratios of all the commercial banks that operated in Guyana between 2017 and 2021. The CAMEL analysis reveals that Demerara Bank Limited (DBL) is the best-performing bank, and the Guyana Bank for Trade and Industry (GBTI) is the worst-performing bank. However, the one-way ANOVA technique suggests no significant differences between the average values of the prudential ratios in the CAMEL model. Based on the Linear Discriminant Analysis, only four ratios differentiate between good-performing and poor-performing banks. These findings provide valuable insights to regulators that employ these tools to identify poor-performing banks to safeguard the stability and soundness of their domestic banking system. By applying the CAMEL rating system and Linear Discriminant Analysis simultaneously in Guyana, an emerging economy in the Caribbean, for the first time, the study contributes to the literature that utilizes these tools to assess the performance of commercial banks.
JEL Classification Codes: G21, G24, L25.
References
Ab-Rahim, R., Kadri, N., Ee-Ling, A., & Dee, A. A. (2018). CAMEL Analysis on performance of ASEAN Public Listed Banks. International Business Research, 11(4), 96-105. https://doi.org/10.5539/ibr.v11n4p96
Adem, M. (2022). Determinants of Credit Risk in Ethiopian Banking Industry: Does Political Stability Matter? Global Business Review. https://doi.org/10.1177/09721509221104244
Al-Najjar, D., & Assous, H. F. (2021). Key determinants of deposits volume using CAMEL rating system: The case of Saudi banks. Plos one, 16(12), e0261184. https://doi.org/10.1371/journal.pone.0261184
Altan, M., Yusufazari, H., & Beduk, A. (2014). Perfornace Analysis of Banks in Turkey Using CAMEL Approach. In Proceedings of International Academic Conferences (Vol. 2, pp. 21-32). International Institute of Social and Economic Sciences. Retrieved from https://www.iises.net/index.php?action=proceedingsIndexConference&id=9
Altman, E. I. (1968). Financial Ratios, Discriminant Analysis and the Prediction of corporate Bankruptcy. The Journal of Finance, 23(4), 589-609. https://doi.org/10.2307/2978933
Ayayi, A. G., & Sene, M. (2010). What drives microfinance institution’s financial sustainability. The Journal of Developing Areas, 44(1), 303–324. Retrieved from http://www.jstor.org/stable/41428207
Atker, A. (2017). Financial Diasnosis Using CAMEL Model: Public versus Private Banks in Bangladesh. American Journal of Trade Policy, 4(1), 39-46. https://doi.org/10.18034/ajtp.v4i1.415
Barker, D., & Holdsworth, D. G. (1993). The causes of bank failures in the 1980s (No. 9325). Federal Reserve Bank of New York.
Barr, R. S., Killgo, K. A., Siems, T. F., & Zimmel, S. (2002). Evaluating the productive efficiency and performance of US commercial banks. Managerial Finance, 28(8), 3-25. https://doi.org/10.1108/0307435021076798
Billings, R., Gonzalez-Hermosillo, B., & Pazarbasioglu, C. (1996). Banking System Fragility: Likelihood Versus Timing of Failure: An Application to the Mexican Financial Crisis. https://doi.org/10.5089/9781451927535.001
Bodla, B. S., & Verma, R. (2006). Evaluating Performance of Banks through CAMEL Model: A Case Study of SBI and ICICI. The IUP Journal of Bank Management, (3), 49-63. Retrieved from https://ideas.repec.org/a/icf/icfjbm/v5y2006i3p49-63.html
Daboh, F., & Duramany-Lakkoh, E. K. (2023). Performance Evaluation of the Sierra Leone Banking Sector using the Camel Rating Framework. Journal of Applied Finance & Banking, 13(3), 1-18. https://doi.org/10.47260/jafb/1331
Derviz, A., & Podpiera, J. (2008). Predicting CAMELS and S&P Ratings: The Case of the Czech Republic. Emerging Markets Finance & Trade, 44(1), 117-130. https://doi.org/10.2753/REE1540-496X440107
Dincer, H., Gencer, G., Orhan, N., & Sahinbas, K. (2011). A performance evaluation of the Turkish banking sector after the global crisis via CAMELS ratios. Procedia-Social and Behavioral Sciences, 24, 1530-1545. https://doi.org/10.1016/j.sbspro.2011.09.051
Echekoba, F. N., Francis, E. C., & Kasie, E. G. (2014). Determinants of Bank Profitability in Nigeria: Using CAMEL Rating Model (2001-2010). IOSR Journal of Business and Management (IOSR-JBM), 16(9), 44-50. https://doi.org/10.9790/487X-16964450
Fielding, D., & Rewilak, J. (2015). Credit booms, financial fragility and banking crises. Economics Letters, 136, 233-236. https://doi.org/10.1016/j.econlet.2015.09.041
Frederick, O. (2012). The impact of credit risk management on financial performance of commercial banks in Kenya. DBA Africa Management Review, 3(1), 22-37.
Gasbarro, D., Sadguna, I. G. M., & Zumwalt, J. K. (2002). The Changing Relationship Between CAMEL Ratings and Bank Soundness during the Indonesian Banking Crisis. Review of Quantitative Finance and Accounting, 19, 247–260. https://doi.org/10.1023/A:1020724907031
Gaul, L., & Jones, J. (2021). CAMELS Ratings and their information content. Office of The Comptroller of the Currency the US Department of the Treasury, First Version, 1(6), 1-37.
Getahun, M. (2015). Analyzing financial performance of commercial banks in Ethiopia: CAMEL Approach. Thesis submitted to Adis Ababa University, Ethiopia.
Ghosh, S. (2010). Credit Growth, Bank Soundness and Financial Fragility: Evidence from Indian Banking Sector. South Asia Economic Journal, 11(1), 69-98. https://doi.org/10.1177/139156141001100105
Ghosh, S., & Sanyal, B. (2019). Determinants of Operating Efficiency of Commercial Banks in India: Insights from Panel Regression Model, Das, R.C. (Ed.) The Impacts of Monetary Policy in the 21st Century: Perspectives from Emerging Economies, Emerald Publishing Limited, Leeds, pp. 253-263. https://doi.org/10.1108/978-1-78973-319-820191025
Gul Zeb, H. Z. B. (2011). Camel Rating System for Banking Industry in Pakistan, Pakistan: Umea School of Business (Master’s Thesis).
Hou, Y. (2007). The Non-Performing Loans: Some Bank-Level Experiences. In 4th AFE-QASS Conference. INEAG, Samos.
Kane, E. J., & Rice, T. (2001). Bank runs and banking policies: lessons for African Policy Makers. Journal of African Economies, 10(suppl_1), 36-71. https://doi.org/10.1093/jae/10.Suppl1.36
Khemraj, T., & Pasha, S. (2016). Determinants of nonperforming loans in Guyana. In Gevorkyan, A. Canuto, O. (eds) Financial Deepening and Post-Crisis Development in Emerging Markets: Current Perils and Future Dawns, 169-187. https://doi.org/10.1057/978-1-137-52246-7_9
Kumar, G., Christy, M., & Raja, AV. (2022). Performance Determinants of Private Commercial Banks in India - A Camel Analysis Approach for the Financial Years 2017-2021. Journal of the Asiatic Society of Mumbai, XCV (39), 120-127.
Kumar, V., & Malhorta, B. (2017). A CAMEL Model Analysis of Private Banks in India. EPRA International Journal of Economics and Business Review, 5(7), 87-93. Retrieved from https://eprajournals.com/IJES/article/8357
Kumari, I. G. S. (2017). A study on the financial performance of foreign commercial banks in Sri Lanka: An application of CAMEL Rating System. Economics, Commerce and Trade Management: An International Journal (ECTIJ), 1(1), 59-70. https://airccse.com/ectij/papers/1117ectij05.pdf
Lad, R., & Ghorpade, N. (2022). An Analysis of Financial Performance of Public Sector Banks in India Using Camel Rating System. International Research Journal of Humanities and Interdisciplinary Studies, 3(6), 15-29. https://doi-ds.org/doilink/06.2022-76526552/IRJHIS2206003
Maude, F. A., & Dogarawa, A. B. (2016). A Critical Review of Empirical Studies on Assessing Bank Performance using CAMEL Framework. Nigerian Journal of Management Technology and Development, A publication of Faculty of Management Technology, Abubakar Tafawa Balewa University, Bauchi, 7(2), 21-32.
Mous, L. (2005). Predicting bankruptcy with discriminant analysis and decision tree using financial ratios. Working Paper Series, University of Rotterdam.
Mishra, S. A., & Aspal, P. K. (2012). A CAMEL Model Analysis of State Bank Group. Proceedings of 19th International Business Research Conference, 2012. http://dx.doi.org/10.2139/ssrn.2177081
Muhmad, S. N., & Hashim, H. A. (2015). Using the CAMEL Framework in Assessing Bank Performance in Malaysia. International Journal of Economics and, Management and Accounting, 23(1), 109-127.
Ngoboka, P. H., & Gatauwa, J. (2020). Camel Rating System and Financial Performance of Rwanda Commercial Banks. IOSR Journal of Economics and Finance (IOSR-JEF), 11(6), 1-13.
Nair, D., Mallawat, H., & Konreddy, N. (2018). Performance analysis of banks in India-Discriminant analysis with CAMELS framework. Research Review International Journal of Multidisciplinary, 3(10), 39-45.
Pasha, S. (2016). Assessment of the Financial Sector and Access to Credit for Productive Development, Unpublished.
Purohit, A., & Bothra, P. (2018). A Camel Model Analysis of Selected Public and Private Sector Banks in India. Proceedings of ASAR International Conference, 07th January, 2018, Goa, India.
Rauf, A. L. (2016). Towards increasing the Financial Performance: An application of CAMEL Model in Banking Sector in the Context of Sri Lanka. Research Journal of Accounting and Finance, 7(5), 66-71. Retrieved from https://www.iiste.org/Journals/index.php/RJFA/article/view/29183/29972
Roman, A., & Sargu, A. C. (2013). Analysing the financial soundness of the commercial banks in Romania: An approach based on the Camels framework. Procedia Economics and Finance, 6, 703-712. https://doi.org/10.1016/S2212-5671(13)00192-5
Rahman, S., & Islam, S. (2018). Use of CAMEL Rating Framework: A Comparative Peformance Evaluaiton of Selected Bangladeshi Private Commercial Banks. International Journal of Economics and Finance, 10(1), 120-128. Retrieved from https://api.semanticscholar.org/CorpusID:55874736
Shah, S. Q., & Jan, R. (2014). Analysis of financial performance of private banks in Pakistan. Procedia-Social and Behavioral Sciences, 109, 1021–1025. https://doi.org/10.1016/j.sbspro.2013.12.583
Schularick, M., & Taylor, A. M. (2012). Credit booms gone bust: monetary policy, leverage cycles, and financial crises, 1870–2008. American Economic Review, 102(2), 1029-1061. http://dx.doi.org/10.1257/aer.102.2.1029
Venkatesh, J., & Suresh, C. (2014). Comparative Performance Evaluation of Selected Commercial Banks in Kingdom of Bahrain Using CAMELS Method. http://dx.doi.org/10.2139/ssrn.2418144
Vithessonthi, C. (2016). Deflation, bank credit growth, and non-performing loans: Evidence from Japan. International Review of Financial Analysis, 45, 295-305. https://doi.org/10.1016/j.irfa.2016.04.003
Wirnkar, D., & Tanko, M. (2008). CAMELs and Banks Performance Evaluation: The Way Forward. http://dx.doi.org/10.2139/ssrn.1150968
Adem, M. (2022). Determinants of Credit Risk in Ethiopian Banking Industry: Does Political Stability Matter? Global Business Review. https://doi.org/10.1177/09721509221104244
Al-Najjar, D., & Assous, H. F. (2021). Key determinants of deposits volume using CAMEL rating system: The case of Saudi banks. Plos one, 16(12), e0261184. https://doi.org/10.1371/journal.pone.0261184
Altan, M., Yusufazari, H., & Beduk, A. (2014). Perfornace Analysis of Banks in Turkey Using CAMEL Approach. In Proceedings of International Academic Conferences (Vol. 2, pp. 21-32). International Institute of Social and Economic Sciences. Retrieved from https://www.iises.net/index.php?action=proceedingsIndexConference&id=9
Altman, E. I. (1968). Financial Ratios, Discriminant Analysis and the Prediction of corporate Bankruptcy. The Journal of Finance, 23(4), 589-609. https://doi.org/10.2307/2978933
Ayayi, A. G., & Sene, M. (2010). What drives microfinance institution’s financial sustainability. The Journal of Developing Areas, 44(1), 303–324. Retrieved from http://www.jstor.org/stable/41428207
Atker, A. (2017). Financial Diasnosis Using CAMEL Model: Public versus Private Banks in Bangladesh. American Journal of Trade Policy, 4(1), 39-46. https://doi.org/10.18034/ajtp.v4i1.415
Barker, D., & Holdsworth, D. G. (1993). The causes of bank failures in the 1980s (No. 9325). Federal Reserve Bank of New York.
Barr, R. S., Killgo, K. A., Siems, T. F., & Zimmel, S. (2002). Evaluating the productive efficiency and performance of US commercial banks. Managerial Finance, 28(8), 3-25. https://doi.org/10.1108/0307435021076798
Billings, R., Gonzalez-Hermosillo, B., & Pazarbasioglu, C. (1996). Banking System Fragility: Likelihood Versus Timing of Failure: An Application to the Mexican Financial Crisis. https://doi.org/10.5089/9781451927535.001
Bodla, B. S., & Verma, R. (2006). Evaluating Performance of Banks through CAMEL Model: A Case Study of SBI and ICICI. The IUP Journal of Bank Management, (3), 49-63. Retrieved from https://ideas.repec.org/a/icf/icfjbm/v5y2006i3p49-63.html
Daboh, F., & Duramany-Lakkoh, E. K. (2023). Performance Evaluation of the Sierra Leone Banking Sector using the Camel Rating Framework. Journal of Applied Finance & Banking, 13(3), 1-18. https://doi.org/10.47260/jafb/1331
Derviz, A., & Podpiera, J. (2008). Predicting CAMELS and S&P Ratings: The Case of the Czech Republic. Emerging Markets Finance & Trade, 44(1), 117-130. https://doi.org/10.2753/REE1540-496X440107
Dincer, H., Gencer, G., Orhan, N., & Sahinbas, K. (2011). A performance evaluation of the Turkish banking sector after the global crisis via CAMELS ratios. Procedia-Social and Behavioral Sciences, 24, 1530-1545. https://doi.org/10.1016/j.sbspro.2011.09.051
Echekoba, F. N., Francis, E. C., & Kasie, E. G. (2014). Determinants of Bank Profitability in Nigeria: Using CAMEL Rating Model (2001-2010). IOSR Journal of Business and Management (IOSR-JBM), 16(9), 44-50. https://doi.org/10.9790/487X-16964450
Fielding, D., & Rewilak, J. (2015). Credit booms, financial fragility and banking crises. Economics Letters, 136, 233-236. https://doi.org/10.1016/j.econlet.2015.09.041
Frederick, O. (2012). The impact of credit risk management on financial performance of commercial banks in Kenya. DBA Africa Management Review, 3(1), 22-37.
Gasbarro, D., Sadguna, I. G. M., & Zumwalt, J. K. (2002). The Changing Relationship Between CAMEL Ratings and Bank Soundness during the Indonesian Banking Crisis. Review of Quantitative Finance and Accounting, 19, 247–260. https://doi.org/10.1023/A:1020724907031
Gaul, L., & Jones, J. (2021). CAMELS Ratings and their information content. Office of The Comptroller of the Currency the US Department of the Treasury, First Version, 1(6), 1-37.
Getahun, M. (2015). Analyzing financial performance of commercial banks in Ethiopia: CAMEL Approach. Thesis submitted to Adis Ababa University, Ethiopia.
Ghosh, S. (2010). Credit Growth, Bank Soundness and Financial Fragility: Evidence from Indian Banking Sector. South Asia Economic Journal, 11(1), 69-98. https://doi.org/10.1177/139156141001100105
Ghosh, S., & Sanyal, B. (2019). Determinants of Operating Efficiency of Commercial Banks in India: Insights from Panel Regression Model, Das, R.C. (Ed.) The Impacts of Monetary Policy in the 21st Century: Perspectives from Emerging Economies, Emerald Publishing Limited, Leeds, pp. 253-263. https://doi.org/10.1108/978-1-78973-319-820191025
Gul Zeb, H. Z. B. (2011). Camel Rating System for Banking Industry in Pakistan, Pakistan: Umea School of Business (Master’s Thesis).
Hou, Y. (2007). The Non-Performing Loans: Some Bank-Level Experiences. In 4th AFE-QASS Conference. INEAG, Samos.
Kane, E. J., & Rice, T. (2001). Bank runs and banking policies: lessons for African Policy Makers. Journal of African Economies, 10(suppl_1), 36-71. https://doi.org/10.1093/jae/10.Suppl1.36
Khemraj, T., & Pasha, S. (2016). Determinants of nonperforming loans in Guyana. In Gevorkyan, A. Canuto, O. (eds) Financial Deepening and Post-Crisis Development in Emerging Markets: Current Perils and Future Dawns, 169-187. https://doi.org/10.1057/978-1-137-52246-7_9
Kumar, G., Christy, M., & Raja, AV. (2022). Performance Determinants of Private Commercial Banks in India - A Camel Analysis Approach for the Financial Years 2017-2021. Journal of the Asiatic Society of Mumbai, XCV (39), 120-127.
Kumar, V., & Malhorta, B. (2017). A CAMEL Model Analysis of Private Banks in India. EPRA International Journal of Economics and Business Review, 5(7), 87-93. Retrieved from https://eprajournals.com/IJES/article/8357
Kumari, I. G. S. (2017). A study on the financial performance of foreign commercial banks in Sri Lanka: An application of CAMEL Rating System. Economics, Commerce and Trade Management: An International Journal (ECTIJ), 1(1), 59-70. https://airccse.com/ectij/papers/1117ectij05.pdf
Lad, R., & Ghorpade, N. (2022). An Analysis of Financial Performance of Public Sector Banks in India Using Camel Rating System. International Research Journal of Humanities and Interdisciplinary Studies, 3(6), 15-29. https://doi-ds.org/doilink/06.2022-76526552/IRJHIS2206003
Maude, F. A., & Dogarawa, A. B. (2016). A Critical Review of Empirical Studies on Assessing Bank Performance using CAMEL Framework. Nigerian Journal of Management Technology and Development, A publication of Faculty of Management Technology, Abubakar Tafawa Balewa University, Bauchi, 7(2), 21-32.
Mous, L. (2005). Predicting bankruptcy with discriminant analysis and decision tree using financial ratios. Working Paper Series, University of Rotterdam.
Mishra, S. A., & Aspal, P. K. (2012). A CAMEL Model Analysis of State Bank Group. Proceedings of 19th International Business Research Conference, 2012. http://dx.doi.org/10.2139/ssrn.2177081
Muhmad, S. N., & Hashim, H. A. (2015). Using the CAMEL Framework in Assessing Bank Performance in Malaysia. International Journal of Economics and, Management and Accounting, 23(1), 109-127.
Ngoboka, P. H., & Gatauwa, J. (2020). Camel Rating System and Financial Performance of Rwanda Commercial Banks. IOSR Journal of Economics and Finance (IOSR-JEF), 11(6), 1-13.
Nair, D., Mallawat, H., & Konreddy, N. (2018). Performance analysis of banks in India-Discriminant analysis with CAMELS framework. Research Review International Journal of Multidisciplinary, 3(10), 39-45.
Pasha, S. (2016). Assessment of the Financial Sector and Access to Credit for Productive Development, Unpublished.
Purohit, A., & Bothra, P. (2018). A Camel Model Analysis of Selected Public and Private Sector Banks in India. Proceedings of ASAR International Conference, 07th January, 2018, Goa, India.
Rauf, A. L. (2016). Towards increasing the Financial Performance: An application of CAMEL Model in Banking Sector in the Context of Sri Lanka. Research Journal of Accounting and Finance, 7(5), 66-71. Retrieved from https://www.iiste.org/Journals/index.php/RJFA/article/view/29183/29972
Roman, A., & Sargu, A. C. (2013). Analysing the financial soundness of the commercial banks in Romania: An approach based on the Camels framework. Procedia Economics and Finance, 6, 703-712. https://doi.org/10.1016/S2212-5671(13)00192-5
Rahman, S., & Islam, S. (2018). Use of CAMEL Rating Framework: A Comparative Peformance Evaluaiton of Selected Bangladeshi Private Commercial Banks. International Journal of Economics and Finance, 10(1), 120-128. Retrieved from https://api.semanticscholar.org/CorpusID:55874736
Shah, S. Q., & Jan, R. (2014). Analysis of financial performance of private banks in Pakistan. Procedia-Social and Behavioral Sciences, 109, 1021–1025. https://doi.org/10.1016/j.sbspro.2013.12.583
Schularick, M., & Taylor, A. M. (2012). Credit booms gone bust: monetary policy, leverage cycles, and financial crises, 1870–2008. American Economic Review, 102(2), 1029-1061. http://dx.doi.org/10.1257/aer.102.2.1029
Venkatesh, J., & Suresh, C. (2014). Comparative Performance Evaluation of Selected Commercial Banks in Kingdom of Bahrain Using CAMELS Method. http://dx.doi.org/10.2139/ssrn.2418144
Vithessonthi, C. (2016). Deflation, bank credit growth, and non-performing loans: Evidence from Japan. International Review of Financial Analysis, 45, 295-305. https://doi.org/10.1016/j.irfa.2016.04.003
Wirnkar, D., & Tanko, M. (2008). CAMELs and Banks Performance Evaluation: The Way Forward. http://dx.doi.org/10.2139/ssrn.1150968
Published
2023-12-22
How to Cite
Raja, V. A., Pasha, S., Ganapathy, K., & Christy, M. (2023). CAMEL MODEL ANALYSIS AND DISCRIMINANT ANALYSIS OF COMMERCIAL BANKS’ PERFORMANCE IN GUYANA, SOUTH AMERICA. Indian Journal of Finance and Banking, 13(2), 23-35. https://doi.org/10.46281/ijfb.v13i2.2155
Section
Research Paper/Theoretical Paper/Review Paper/Short Communication Paper
Copyright (c) 2023 Vincent A. Raja, Sukrishnalall Pasha, Kumar Ganapathy, Maria Christy
This work is licensed under a Creative Commons Attribution 4.0 International License.
