Evaluating Performance of Commercial Banks in Pakistan: An Application of Camel Model
Ishaq AB, Karim A, Ahmed S and Zaheer A*
Department of Finance, Army Public College of Management and Sciences (APCOMS), University of engineering and technology, Taxila, Pakistan
- *Corresponding Author:
- Adnan Zaheer
Department of Finance, Army Public
College of Management and Sciences (APCOMS)
University of Engineering and Technology Khadim
Hussain Road, Rawalpindi, Taxila, Punjab, Pakistan
E-mail: [email protected]
Received January 05, 2016; Accepted January 21, 2016; Published January 28, 2016
Citation: Ishaq AB, Karim A, Ahmed S, Zaheer A (2016) Evaluating Performance of Commercial Banks in Pakistan: “An Application of Camel Model”. J Bus Fin Aff 5:169. doi:10.4172/2167-0234.1000169
Copyright: © 2016 Ishaq AB, et al. This is an open-access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.
Banking sector plays a vital role in the economic growth. 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 and 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.