Performance Analysis of Nationalized Banks in Pakistan:

An Application of CAMEL Model

Objective of Study
The present study is an attempt to examine the performance of nationalized banks in
terms of CAR, Asset Quality, Management, Earning, Liquidity and Sensitivity to
market risk.

Objectives of the Study

Objectives are the guiding light of a project in the light of which all the relevant steps
are taken. The objectives of this study were as follows:
• To assess the performance of nationalized banks on the basis of
CAMEL model
• To rank the banks on the basis of various parameters suggested by CAMEL
model
• To rate top five and bottom five banks on the basis of their performance for
each year
• To suggest various measures to improve the performance of the nationalized
Banks

The acronym "CAMEL" refers to the five components of a bank's condition

that are assessed: Capital adequacy, Asset quality, Management, Earnings, and
Liquidity. A sixth component, a bank's Sensitivity to market risk was added in 1997;
hence the acronym was changed to CAMEL. CAMEL’ model is basically a ratiobased
model for evaluating the performance of banks. Various ratios forming this
model are explained below:
 “CAMELS RATING SYSTEM AND FORECASTING PERFORMANCE OF
COMMERCIAL BANKING SECTOR”

“Performance Analysis of top 5 Banks in Pakistan:

An Application of CAMEL Model”
“Performance Analysis of top 5 Banks in Pakistan
Before and during Financial crisis Using CAMEL model”

The main objective can be broken down into the following:

1. To identify which bank’s asset quality is higher during the period of the
study;
2. To determine whether capital adequacy of commercial banks has affected
their performance during the study period;
3. To examine whether bank management influences the performance of
banks;
4. To demonstrate that liquidity of the commercial banks has improved and
has contributed to the performance of the banks under study.

The data for financial ratios are obtained from the respective banks’ annual
report each year for
the period from 2005 until 2009.

Dependent variables:
Among the most important ratio measures of bank profitability used today
are the following:
1. Return on shareholder’s equity {Return on equity capital (ROE) = (net
income) / (total equity capital)}
2. managerial efficiency --------{Return on assets (ROA) = (net income) /
(total assets)}

Independent variables:
1. capital adequacy
2. asset quality
3. management
4. earnings
5. Liquidity

H1 – There is a significant relationship between Capital Adequacy

ratios and
Performance of the banks.

Correlation:
Growth in CAR is independent of return on assets
CAR ratio increases do not depend positively on ROE.