Key Ratios for CAMEL Rtings

The key ratios used by the examiners to determine the CAMEL rating of any
institution are given below.

Capital
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Total Assets

This is a capital adequacy ratio that measures capital in relation to total assets.
Capital provides a cushion to absorb losses, its rate of growth should equal or exceed the
rate of growth in total assets.

Capital – Estimates losses

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Total Assets

This ratio measures the capital adequacy [capital less estimated losses] in relation
to total assets. A low ratio value in relation to the peer group average indicates limited
ability to withstand losses and / or future economic downturns.

Delinquent loans
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Total Assets

This is an asset quality ratio that measures delinquent loans in relation to the total
loans. It indicates not only control but also potential losses.

Net charge offs

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Average loans

This is an asset quality ratio that measures net charge-off in relation to average
loans. Charge-off is an important indicator of the effectiveness of lending and collection
practices.

Non earning assets

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Total Assets

Basically this is an asset quality ratio. A high value ratio in relation to the peer
group average may indicate that the bank is not maximizing its asset / earning potential.

Operating expenses – Provision for loan losses – Interest expenses

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Average Assets
 A high ratio value in relation to the peer group average may indicate that
operating expenses are not being adequately controlled.

Net income before statutory reserve transfers

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Average Assets

This ratio is an initial indicator of profitability. A positive ratio value shows that
earnings were sufficient to cover operating expenses and cost of funds.

Net income after transfers

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Average Assets

This ratio is the proper indicator of profitability as the operating expenses and statutory
transfers have been met.