Applying the CAMEL model to assess performance of commercial banks: empirical evidence from Vietnam
-
Author(s)Anh Huu NguyenLink to ORCID Index: http://orcid.org/0000-0003-3844-9826
,
Hang Thu Nguyen
,
Huong Thanh Pham
-
DOIhttp://dx.doi.org/10.21511/bbs.15(2).2020.16
-
Article InfoVolume 15 2020, Issue #2, pp. 177-186
- Cited by
- 1788 Views
-
6443 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
The paper aims to investigate the impact of CAMEL components on the financial performance of commercial banks in Vietnam. Three econometric models are built using four CAMEL’s crucial indicators as independent variables (capital adequacy, asset quality, management effectiveness, bank liquidity) and return on assets (ROA), return on equity (ROE), and net interest margin (NIM) as proxies for commercial banks’ financial performance – dependent variables. The research sample includes 31 Vietnamese commercial banks over the 6-year period, from 2013 to 2018. The results show a better fit of the fixed effects model (FEM) in terms of the research methodology compared to the ordinary least squares (OLS) and random effects model (REM). It was found that capital adequacy, asset quality, liquidity and management efficiency affect the performance of Vietnamese commercial banks.
Acknowledgement
This research is funded by National Economics University (NEU), Hanoi, Vietnam. The authors thank anonymous referees for their contributions and the NEU for funding this research.
view full abstract
-
JEL Classification (Paper profile tab)G20, G21, G30
-
References26
-
Tables6
-
Figures0
-
- Table 1. Dependent variable measurement
- Table 2. Independent variable measurement
- Table 3. The impact of independent variables on ROA
- Table 4. The impact of independent variables on ROE
- Table 5. The impact of independent variables on NIM
- Table 6. Summary of the impact of each factor on the performance of Vietnamese commercial banks
-
- Anggono, H. (2017). The determinant factors of asset and liability management and the bank performance: empirical study on foreign exchange commercial banks in Indonesia from 2008 to 2013. International Journal of Business and Globalization, 19(4), 512-527.
- Dang, U. (2011). The CAMEL rating system in banking supervision: A case study (Degree Thesis). Arcada University of Applied Sciences.
- Douglas, E., Lont, D., & Scott, T. (2014). Finance company failure in New Zealand during 2006–2009: predictable failures? Journal of Contemporary Accounting and Economics, 10(3), 277-295.
- Gupta, CA. R. (2014). An analysis of Indian public sector banks using camel approach. IOSR Journal of Business and Management, 16(1), 94-102.
- Heid, F. (2007). The cyclical effects of the Basel II capital requirements. Journal of Banking and Finance, 31(12), 3885-3900.
- Ilhomovich, S. E. (2009). Factors affecting the performance of foreign banks in Malaysia. (Masters Thesis). Universiti Utara Malaysia.
- Ishaq, A. B., Karim, A., Ahmed, S., & Zaheer, A. (2016). Evaluating Performance of Commercial Banks in Pakistan: An Application of Camel Model. Journal of Business and Financial Affairs, 5(1), 1-30.
- Jaffar, M., & Manarvi, I. (2011). Performance comparison of Islamic and conventional banks in Pakistan. Global Journal of Management and Business Research, 11(1), 59-66.
- Keovongvichith, P. (2012). An analysis of the recent financial performance of the Laotian banking sector during 2005–2010. International Journal of Economics and Finance, 4(4), 148-162.
- Kumar, V. (2016). Evaluating the financial performance and financial stability of national commercial banks in the UAE. International Journal of Business and Globalisation, 16(2), 109-127.
- McKinnon, R. (1973). Money and capital in economic development. Brookings Institution, Washington DC, USA.
- Misra, S. K., & Aspal, P. K. (2013). A camel model analysis of state bank group. World Journal of Social Sciences, 3(4), 36-55.
- Mohiuddin, G. (2014). Use of camel model: a study on financial performance of selected commercial banks in Bangladesh. Universal Journal of Accounting and Finance, 2(5), 151-160.
- Nguyen, N. P. (2011). An overview of the financial situation in Vietnamese joint stock commercial banks. Journal of Economics & Development, 3(1), 77-86.
- Nguyen, T. H. (2012). Analysis of financial structure in commercial banks. Journal of Economics & Forecasting, 5(1) 102-110.
- Nimalathasan, B. (2008). A comparative study of financial performance of banking sector in Bangladesh – an application of CAMELS rating system. Economic and Administrative Series, 2(1), 141-152.
- Olweny, T., & Shipho, T. M. (2011). Effects of banking sectoral factors on the profitability of commercial banks in Kenya. Economics and Finance Review, 1(5), 1-30.
- Ongore, V. O., & Kusa, G. B. (2013). Determinants of Financial Performance of Commercial Banks in Kenya. International Journal of Economics and Financial Issues, 3(1), 237-252.
- Phan, H.N.T. (2013). Financial capacity of Vietnamese commercial banks. ProQuest Digital Dissertation (AAT 6234020).
- Roman, A., & Şargu, 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(1), 703-712.
- Rose, P., & Hudgins, S. (2010). Bank management and financial services. McGraw-Hill/Irwin.
- Sangmi, M., & Tabassum, N. (2010). Analyzing Financial Performance of Commercial Banks in India: Application of CAMEL Model. Pakistan Journal Commercial Social Sciences, 4(1), 40-55.
- Sarker, A. (2005). CAMEL rating system in the context of Islamic banking: a proposed ‘S’ for Sariah framework. Journal of Islamic Economics and Finance, 1(1), 78-84.
- Sundararajan, V., Enoch, C., San José, A., Hilbers, P., Krueger, R., Moretti, M., & Slack, G. (2002). Financial Soundness Indicators: Analytical Aspects and Country Practice (IMF Occasional Paper No. 212). International Monetary Fund.
- Tumin, M. H., & Said, R. M. (2011). Performance and financial ratios of commercial banks in Malaysia and China. International Review of Business Research Papers, 7(2), 157-169.
- Zedan, K., & Daas, G. (2017). Palestinian Banks Analysis Using CAMEL Model. International Journal of Economics and Financial Issues, 7(1), 351-357.
