summer project (1)

1
Evaluating the Performance of Commercial Banks in
Nepal: An Application of CAMEL Rating System
Sadish Karki
Roll No: 10450124
PU Registration No: 2009-2-45-0066
A Summer Project Report Submitted to
Uniglobe College
Submitted for the degree of
Bachelor of Business Administration (BBA)
Kathmandu
14th January 2015

2
DECLARATION
This Summer Project Report entitled-Evaluating the performance of
Commercial Banks: An Application of CAMEL Rating System which
is submitted by me in partial fulfillment of the requirement for the
award of BBA degree of Pokhara University comprises only my
original work and due acknowledgement have been made to materials
used in the report.
…………………
Sadish Karki
10thjanauary, 2015

3
BONAFIDE CERTIFICATE
Certified that this project report
Evaluating the performance of commercial Banks in Nepal: An
Application of CAMEL Rating System
is the bonafide work of
Sadish Karki
who carried out the summer project work under my supervision. This
report is forwarded for examination.
……………………..
………………………………
Dr.RamjiGautam, Dr. RadheeShyam Pradhan,
Supervisor Program Director
……………………
External Examiner: ________________
Date:

4
ACKNOWLEDGEMENT
.
It gives me great pleasure in acknowledging the support and help of the
Principal and Program Director of UniglobeCollege, Under-graduate
School, Dr. Nar BhadurBistaand DrRadheeShyam Pradhan. I also wish to
especially thank to my projectsupervisor Dr. RamjiGautanwhose help,
stimulating suggestions and encouragement helped me in every step of
this project.
I also express my sincere gratitude to all the other respected faculties of
themanagement department, librarian, lab technician and all other office
staff for their assistance and co-operation given to me in regard to this
work.
I also want to thank all my family, colleagues and friends for their help,
support, interest and valuable hints. I have tried to include all the relevant
information regarding the topic of my study. I heartily welcome
suggestions and comments for the improvement of the report.
Finally, I again send my warm greetings and obligations to all those who
involved in
this project directly or indirectly.
Thanking you,
Sadish Karki
BBA

5
EXECUTIVE SUMMARY
Performance of the banks is given much concerned at the national as well
as at the international level.The evaluation of performance of the
commercial banks are very vital as the performance of the commercial
banks gives the idea of the economic scenario of the country.Performance
of the banks are evaluated using various techniques.
In this research, CAMEL Rating System is used .CAMEL Rating System
is one of the widely used technique for the evaluation and measurement
of the performance of the commercial Banks .The Performance of the
commercial banks are evaluated on the parameters like Capital
Adequacy, AssestQuality,Management Efficiency, Earning Quality and
Liquidity.
Altogether eighteen standard ratios were used for the study .The studied
showed that there wasn’t much significant differences in the performance
of the commercial banks.The performance of the banks on the some
CAMEL ratios were good ,the performance of the banks on some ratios
were satisfactory while the performance on the some ratios needed an
improvement .
On the basis of overall performance of the banks, Standard Charted Bank
Limited secured the first position .The second position was secured by
Everest Bank Limited followed by Nabil Bank Limited.The fourth
position was secured by Kumari Bank limited,Nepal Bank Limited
secured the last position with its poor performance in CAMEL Ratios.

6
Table of Contents
Title Page
Acknowledgements 4
Executive Summary 5
List of Tables 7
List of Figures 8
1. INTRODUCTION 9-27
1.1. Background 9
1.2. Statement of the Problem 16
1.3. Objectives 17
1.4. Limitations of the study 17
1.5. Organizations of the Study 18
1.6. Literature Review 18
1.7. Research Methods 24
2. DATA ANALYSIS AND MAJOR FINDINGS 28-61
2.1. Data Analysis and Presentation 28
2.2. Major Findings 61
3. SUMMARY AND CONCLUSIONS 62-64
3.1. Summary 62
3.2. Conclusion 64
References 65

9
CHAPTER I
INTRODUCTION
1.1 Background of the study
1.1.1 An overview to Bank
The word Bank is derived from the Italian word ‘banco’ which means bench.
In the past monetary transactions were performed sitting in the bench not in
the market. So, the term ‘Banco’ was used to refer to the monetary transaction.
A bank is a financial intermediary that accepts deposits and channels those
deposits into lending activities, either directly by loaning or indirectly through
capital markets .Bank can be defined as an institution which deals with
monetary transactions for the mobilization of idle money or deposits in
productive sector which is essential for development of whole nation. Bank
play a crucial role in the allocation of the economic resource of the country
.Bank is an important source of financing for the most of the business. Banks,
especially the commercial banks play the major role for the sustainable
development of the country .It is essential for us to evaluate the performance
of the commercial banks .Performance of the banks gives us an idea about the
economic scenario of the country .So, it is very essential to evaluate the
performance of commercial banks . Performance of the banks can be
evaluated using various techniques like Data Envelopment Analysis (DEA),
Ratio Analysis and the Stochastic Frontier Approach (SFA). In this study,
CAMEL rating system has been used.
1.1.2 History of banks in Nepal
The banking system in Nepal initiated with the establishment of the Nepal
Bank limited. Nepal Bank Limited, the first commercial bank of Nepal was
established in 1937 A.D. Due to the absence of the Central bank, NBL had
played the role of the central bank by operating the functions of the central
bank. The country central bank Nepal Rastriya Bank was established in the
1956 A.D. All the banks and financial institution are controlled and monitored
by NRB. Rastriya Banijya Bank was established in 1966 A.D. as the second

10
commercial bank of Nepal. The financial shapes for these two commercial
banks (NBL and RBB) have a tremendous impact on the economy. That is the
reason why these banks still exist in spite of their bad position. As the
agriculture is the basic occupation of major Nepalese, the development of this
sector plays in the prime role in the economy. So, separate Agricultural
Development Bank was established in 1968 A.D. This is the first institution in
agricultural financing.
In the context of banking development, the 1980s saw a major structural
change in financial sector policies, regulations and institutional developments.
HMG/N emphasized the role of the private sector for the investment in the
financial sector. The financial sector liberalization, started already in the early
eighties with the liberalization of the interest rates, encompassed further
deregulation of interest rates, relaxation of entry barriers for domestic and
foreign banks, restructuring of public sector commercial banks and withdrawal
of central bank control over their portfolio management (Acharya et al, 2003).
These policies opened the doors for foreigners to enter into banking sector
under joint venture. Consequently, the third commercial bank in Nepal, or the
first foreign joint venture bank, was set up as Nepal Arab Bank Ltd (now
called as Nabil Bank Ltd) in 1984.
Thereafter, two foreign joint venture banks, Nepal Indosuez Bank Ltd. (now
called as Nepal Investment Bank) and Nepal Grindlays Bank Ltd (now called
as Standard Chartered Bank Nepal Ltd.) was established in 1986 and 1987
respectively. After that, 25 commercial banks have been established
.Currently; there are 30 commercial banks in Nepal.
The list of commercial banks in Nepal is as follows:
S.N Name of the commercial bank Established date (in A.D)
1. Nepal Bank Limited 1937
2. Rastriya Banijya Bank Limited 1966
3. Agriculture Development Bank Limited 1968
4. Nabil Bank Limited 1984
5. Nepal Investment Bank Limited 1986
6. Standard Chartered Bank Nepal Limited 1987

11
7. Himalayan Bank Limited 1993
8. Nepal SBI Bank Limited 1993
9. Nepal Bangladesh Bank Limited 1993
10. Everest Bank Limited 1994
11. Bank of Kathmandu Limited 1995
12. Nepal Credit and Commerce Bank Limited 1996
13. Lumbini Bank Limited 1998
14. NIC Asia Bank Limited 2013
15. Machhapuchchhre Bank Limited 2000
16. Kumari Bank Limited 2001
17. Laxmi Bank Limited 2002
18. Siddhartha Bank Limited 2002
19. Global IME Bank Limited 2013
20. Citizens Bank International Limited 2007
21. Prime Commercial Bank Limited 2007
22. Sunrise Bank Limited 2009
23. Grand Bank Nepal Limited 2008
24. NMB Bank Limited (Nepal) 2009
25. Prabhu Bank Limited 2014
26. Janata Bank Nepal Limited 2009
27. Mega Bank Nepal Limited 2009
28. Civil Bank Limited 2010
29. Century Commercial Bank Limited 2011
30. Sanima Bank Limited 2011
Table 1: List of commercial banks in Nepal
1.1.3 An overview to Camel rating system
A CAMEL rating is a supervisory rating system developed in the U.S.A
to classify the bank’s overall condition. CAMEL is a management tool that
measures Capital Adequacy, Assets Quality, Management efficiency, Earning
quality and Liquidity of financial institutions. It is a standardized method

12
which allows the assessment of the quality of banks according to standard
criteria providing a meaningful rating. In 1979, Uniform Financial Institutions
Rating System (UFIRS) was implemented in the banking institutions of
United States of America. The system became internationally known with the
abbreviation CAMEL, reflecting five assessment areas: capital, asset quality,
management, earnings and liquidity Later on, it was recommended by U.S
Federal Reserve to implement it worldwide .The purpose of CAMEL rating
is to recognize the weakness and strengths of the financial, managerial and
operational aspect of the commercial bank . The application of CAMEL has
spread up dramatically in respect of inspecting the financial strengths of one of
the basic components of money market (i.e. commercial banks). It is based on
examiner assessment of a banking institution under certain supervisory
criteria, and is used by all three US supervisory agencies, i.e. the Federal
Reserve System, Office of the Comptroller of the Currency (OCC) and the
Federal Deposit Insurance Corporation (FDIC). Under this system, each
banking institution subject to on-site examination is evaluated on the basis of
five critical dimensions relating to its operations and performance, which are
referred to as the component factors. These are Capital, Asset Quality,
Management, Earnings and Liquidity and are seen to reflect the financial
performance, financial condition, operating soundness and regulatory
compliance of the banking institution. Each of the component factors is rated
on a scale of 1 (best) to 5 (worst). It focused on the mandated aspects of
solvency, liquidity, financial and operational health, based on CAMEL model.
CAMEL rating system is to be evaluated on the scale of one to five rating in
ascending order .The CAMEL ratings with their meanings are described as:

13
Rating Meaning
1 It indicates safe and sound operations through strong performance and risk
management practices.
2 It reflects safe and sound operations through satisfactory performance and risk
management practices.
3 The performance is marginal, unsatisfactory practices and flawed to some
degree, means that weak performance but limited concern for failure.
4 It is significantly below average, poor performance and requires close
supervisory attention and immediate action.
5 It reflects unsatisfactory performance; there is a great chance of failure and
very difficult for the management to control. Immediate actions needed to be
taken in the form of liquidation, payoff shareholders, merger, acquisition etc.
Table 2:CAMEL RATINGS
1.1.4 An overview to selected banks
The five banks was selected for the study .Purposive sampling technique was
used to select the banks .The selected banks will be evaluated and ranked
under the CAMEL rating .The brief introduction of the selected banks are as
listed below :
i. Standard Charted Bank Limited: Standard Chartered Bank Nepal
Limited has been in operation in Nepal since 1987. It was initially
registered as a joint-venture operation. Today the Bank is an integral
part of Standard Chartered Group having an ownership of75% with
25% shares owned by the Nepalese public. The Bank enjoys the status
of being a subsidiary of Standard Chartered Bank, a leading
international bank in the world.
The capital structure of the bank is given as:

14
Share capital Amount
Authorized share capital 2,000,000,000
Paid up share capital 1,853,900,000
Issued share capital 1,853,900,000
Total 5,707,800,000
Table 3: Capital stucture of Standard Charted Bank limited
ii. Nabil Bank Limited: Nabil Bank Limited Arab Bank Limited was
established on July 1, 1984. It is the first private sector commercial
bank of Nepal. Nabil was incorporated with the objective of extending
international standard modern banking services to various sectors of
the society. Nabil, as a pioneer in introducing many innovative
products and marketing concepts in the domestic banking sector,
represents a milestone in the banking history of Nepal as it started an
era of modern banking with customer satisfaction measured as a focal
objective while doing business. The capital structure of the bank is
given as follows:
Total 7,373,682,800
Table 4: Capital Structure of Nabil Bank Limited
iii. Nepal Bank limited: Nepal Bank Limited is the first bank of Nepal. It
was established on 15th November, 1957 A.D (Kartik1, 1994 B.S).It
was established under principle of joint venture between government
and public. The bank has been providing banking through its branch
offices in the different geographical locations of the country. It was
only the financial institution of the country until the establishment of
the Nepal Rastra Bank. Due to the absence of Central Bank,NBL had
to play therole to operate the function of the Central Bank

15
Issued share capital 380,382,600
Total 10,380,382,600
Table 5: Capital Structure of Nepal Bank Limited
iv. Kumari Bank limited: Kumari Bank Limited started its banking
operations from 3 April 2001 (21 Chaitra 2057 BS) as the fifteenth
commercial bank in Nepal. Since its inception, Kumari Bank has been
providing competitive and modern banking services to all Nepali
consumers, and has stood as one of the most trusted banks in Nepal.
The capital structure of Kumari bank is as follow
Total 5,207,600,000
Table 6: Capital Stucture of Kumari Bank Limited
v. Everest bank limited:Everest bank commenced its banking operation
from 1994 A.D. It was established under the collaboration of the
Punjab National bank . The bank holds 80% of public and 20% of the
Punjab National Bank.EBL was one of the first bank to introduce
ABBS(Any Branch Banking system ). EBL introduced branchless
banking system first time in Nepal to cover unbanked sector of
Nepalese society through biometric machine. The capital structure of
EBL is as follows :

16
Total 5,552,252,820
Table 7: Capital Structure of Everest Bank Limited
1.2 Statement of the problem
The economic development of a country depends more on real factors such as the
industrial growth & development, modernization of agriculture, expansion of
internal trade and foreign trade. The role and importance of banking sector and the
monetary mechanism cannot be under-estimated in the development of a nation.
Hence, the banks and financial institutions play significant and crucial role by
contributing in economic planning such as lying down of specific goals and
allocating particular amount of money that constitute the economic policy of the
government. A sound financial system is indispensable for the growth of a healthy
and vibrant economy. A sound banking industry comprises a paramount
component of the financial service sector. Performance of the banking sector is an
effective measure and indicator to check the performance of any economy to a
large extent. The banking sector’s performance is perceived as the replica of
economic activities of the economy as a healthy banking system plays as the
bedrock of economic, social and industrial growth of an economy
Bank’s performance or rather solvency or insolvency has been given much
attention both at the local and international level. Financial ratios are often used
to measure the overall financial soundness of a bank and the quality of its
management. Banks’ regulators, for example, use financial ratios to help evaluate
bank’s performance as part of the CAMEL system (YUE, 1992). Financial ratios
are somewhat limited in scope, that is, simple gap analysis are one dimensional
views of a service, product, or process that ignore any interactions, substitutions
or trade-offs between key variables (Siems and Barr, 1998).

17
CAMEL is a rating system generally used by the government policy circle,
regulating bodies regulating commercial banks, that is, central banks and non-
governmental policy research centers for the purpose of assessing the soundness
of a savings association or a bank. Thus, bank regulators may use financial ratios
to help evaluate a bank’s performance as part of CAMEL rating system” (Piyu,
1992).
The following are the research questions:
i. What is the financial performance of commercial banks in Nepal?
ii. How much adequate capital do the banks have?
iii. What is the condition of assets of the banks?
iv. How far is the management of banks sound and efficient?
v. What is the earning ability of banks?
vi. What is the liquidity position of the banks?
1.3 Objectives of the Study
1.3.1 General Objective
The main objective of the research is to analyze the performance of Nepalese
commercial banks according to CAMEL ranking system.
1.3.2 Specific Objective
Specifically, this study has following objectives:
 To analyze and evaluate the performance of the selected banks
 To rank the selected commercial banks according to the CAMEL method
 To highlight the comparison of the performance of the banks
accordance to the CAMEL factors
 To identify how CAMEL factors influence the bank ranking.
 To highlight the situation of banks according to the CAMEL
1.4 Limitations of the Study
This study is not absolutely free from limitations; the limitations observed
while conducting this summer project are as follows:
i. Out of 30 commercial banks, only five banks are taken into the
study.

18
ii. The study is carried out only for five years.
iii. Few ratios are used for CAMEL analysis
However, attempt will be made to prepare the report as authentic and
reliable as possible.
1.5 Organization of the study
The study will be organized into three chapters.
 Chapter I: This first chapter will be introductory chapter which gives brief
introduction of the study. This chapter will tell the brief on what the research
is about. It includes information on the general background, statement of the
problem objectives of the study, limitations of the study, review of related
studies, research methods of the study.
 Chapter II: This chapter will be highlights the presentation and analysis of the
collected data. The collected data’s will be analyzed in this part by using
different CAMEL ratio and statistical tools. Major findings are written and
discussion is done in the end of chapter II.
 Chapter III: In this final chapter, the summary, conclusions and
recommendations will be given as per the study.
1.6 Literature review
Bank’s performance or rather solvency or insolvency has been given much attention
both at the local and international level. In order to evaluate the financial performance
of banking sector the researchers, academicians and policy makers have investigated
several studies in different time. There are many studies conducted to analyze,
compare and rank the financial performance of banks as well as other financial
institutions in various countries with the use of various statistical techniques such as
Data Envelopment Analysis (DEA), Ratio Analysis and the Stochastic Frontier
Approach (SFA). Studies by Saveeta and VermaSateesh (2001), Shravan Singh

19
(2001), KantawalaAmita S (2004), Ketkar W Kusum et al. (2004), analyze the
performance of banks from a profitability point of view, using various parameters.The
financial performance of banks and other financial institutions has been measured
using a combination of financial ratios analysis, benchmarking, measuring
performance against budget or a mix of these methodologies (Avkiran, 1995).
Beaver (1966) was the first person to use financial ratios for predicting bankruptcy.
His study was limited to looking at only one ratio at a time. Altman (1968) changed
this by using a multiple discriminant analysis (MDA). His analysis combined the
information from several financial ratios in a single prediction model. Altman’s z-
score model was the result of this multiple discriminant analysis and has been popular
for a number of decades as it was easy to use and highly accurate. But there was
critique on the MDA model. Altman treated businesses from different sectors as the
same, ignoring the fact that there should be different values for a healthy indication by
the financial ratios of the different kinds of businesses.
Financial ratios are often used to measure the overall financial soundness of a bank
and the quality of its management. Banks’ regulators, for example, use financial ratios
to help evaluate a bank’s performance as part of the CAMEL system (YUE, 1992).
Despite continuous use of ratios analysis in banks performance appraisal by
regulators, opponents to it still thrive. Financial ratios are somewhat limited in scope,
that is, simple analysis are one dimensional views of a service, product, or process
that ignore any interactions, substitutions or trade-offs between key variables (Siems
and Barr, 1998).
Most of the studies (Ganesan P 2001; RayapatiVijayasree, 2002; Das M R, 2002-
2003; and Gupta V & Jain P K, (2003) compared the performance of public, private
and foreign banks by using measures of profitability, productivity, and financial
management (TrehanRuchi and Sonu Nitti, 2003).P Janaki Ramudu and S Durga Rao
(2006) conducted a study on A Fundamental Analysis of Indian Banking Industry, by
analyzing the performance of SBI, ICICI and HDFC.
A study conducted by Barr et al. (2002) viewed that “CAMEL rating criteria has
become a concise and indispensable tool for examiners and regulators”. This rating
criterion ensures a bank’s healthy conditions by reviewing different aspects of a bank
based on variety of information sources such as financial statement, funding sources,

20
macroeconomic data, budget and cash flow. Raj Mohan S and Pashupati S (2010)
conducted a study to evaluate the performance of TAICO bank using profitability
ratios.
Baral (2005) study the performance of joint ventures banks in Nepal by applying the
CAMEL Model. His study was mainly based on secondary data drawn from the
annual reports published by joint venture banks. His report analyzed the financial
health of joint ventures banks in the CAMEL parameters. His findings of the study
revealed that the financial health of joint ventures is more effective than that of
commercial banks. Moreover, the components of CAMEL showed that the financial
health of joint venture banks was not difficult to manage the possible impact to their
balance sheet on a large scale basis without any constraints inflicted to the financial
health.
Nimalathasan B. (2008) highlighted comparison of financial performance of banking
sector in Bangladesh using CAMELS rating system. Accordingly CAMELS rating
system shows that 3 banks was 01 or Strong, 31 banks were rated 02 or Satisfactory,
rating of 7 banks was 03 or fair, 5 banks were rated 4 or Marginal and 2 banks got 05
or unsatisfactorily rating. 1 NCB had unsatisfactorily rating and other 3 NCBs had
Marginal rating
Nurazi and Evans (2005) investigated whether CAMEL(S) ratios could be used to
predict bank failure. The results suggested that adequacy ratio, assets quality,
management, earnings, liquidity and bank size are statistically significant in
explaining bank failure. Olweny and Shipo (2011) found that poor asset quality and
low levels of liquidity are the two major causes of bank failures. Poor asset quality led
to many bank failures in Kenya in the early 1980s. Ongore and Kusa (2013)
concluded that the financial performance of commercial banks in Kenya was driven
mainly by board and management decisions.
Al-Tammie (2010) investigated factors influencing the performance of Islamic banks
and conventional banks in (UAE) during 1996 to 2008. The study resulted that
liquidity and concentration were significant determinants of the performance of
Islamic banks. Gupta and Kaur (2008) conducted the study with the main objective to
assess the performance of Indian private sector banks using CAMEL model and gave
rating to top five and bottom five banks. Reddy and Prasad (2011) discussed the

21
financial performance of selected regional rural banks during post reorganization
period. The study adopted CAMEL model to examine the overall performance of
Andhra PragathiGrameena Bank and SapthagiriGrameena Bank.
Siva and Natarajan (2011) empirically tested the applicability of CAMEL and
its consequential impact on the performance of SBI Groups. The study found that
CAMEL scanning helps the bank to diagnose its financial health and alert the bank to
take preventive steps for its sustainability. Alabede (2012) concluded that in the
presence of the effect of global financial condition, only assets quality and market
concentrations are significant determinants of the Nigerian banks’ performance. The
study suggested reducing nonperforming assets and introducing a policy to encourage
fair competition among the bank has been measured using a combination of financial
ratios analysis, benchmarking, measuring performance against budget or a mix of
these methodologies (Avkiran, 1995).
Cole and Gunther examined a similar question and found that CAMEL ratings contain
useful information (Cole, R.A. and Gunther, J.W., 1998). Hirtle and Lopez also
inquired into the worth of CAMEL ratings in assessing banks current condition.
While comparing to past CAMEL ratings to current CAMEL ratings, they found that
the private supervisory information contained in the past CAMEL ratings provides
further insight into bank current conditions, as summarized by current CAMEL
ratings and that for the period from 1989 to 1995, the private supervisory information
gathered during the last on-site exam remains useful with respect to current condition
of a bank for 6 to 12 quarters (Hirtle, B.J. and Lopez, J.A: 1999). Elizabeth and Elliot
(2004) indicated that all financial performance measure as interest margin, return on
assets, and capital adequacy are positively correlated with customer service quality.
Mishra and AspalKumar (2013) made an attempt to evaluate the performance and
financial soundness of State Bank Group using CAMEL approach. It is found that in
terms of Capital Adequacy parameter SBBJ and SBP were at top position, while SBI
got lowest rank. In terms of Asset Quality parameter, SBBJ held the top rank while
SBI held the lowest rank. Under Management efficiency parameter it was observed
that top rank taken by SBT and lowest rank taken by SBBJ. In terms of Earning
Quality parameter the capability of SBM got the top rank while SBP was at the lowest
position. Under the Liquidity parameter SBI stood on the top position and SBM was

22
on the lowest position. SBI needs to improve its position with regard to asset quality
and capital adequacy, SBBJ should improve its management efficiency and SBP
should improve its earning quality.
Cinko&Avci (2008) noticed that globally all the banking supervisory authorities are
using CAMEL rating system for many years. In this synthesis financial ratios were
applied to calculate components of CAMEL ratings for the period of 1996-2000. The
financial ratios were also employed to anticipate the delegation of commercial banks
in 2001 to the SDIF by adopting discriminant analysis, logistic regression and neural
network models. However the conclusion revealed that it was impossible to predict
the transfer of a bank to SDIF by mode of CAMEL ratios.
Wirnkar and Tanko (2008) analyzed the adequacy of CAMEL in evaluating the
performance of bank. This empirical research was implemented to find out the
ampleness of CAMEL in examining the overall performance of bank, to find out the
importance of each component in CAMEL and finally to look out for best ratios that
bank regulators can adopt in assessing the efficiency of banks. The analysis was
performed from a sample of eleven commercial banks operating in Nigeria. The study
covered data from annual reports over a period of nine years (1997-2005). The
analysis disclosed the inability of each component in CAMEL to congregate the full
performance of a bank. Moreover the best ratios in each CAMEL parameter were
determined.
Dash & Das (2009) have analyzed the Indian Banking Industry under CAMELS
framework. The thesis compares the performance of public sector banks with that of
private/ foreign banks. The analysis was performed from a sample of 58 banks
operating in India of which 29 were public sector banks and 29 were private/foreign
sector. The data used were from the audited financial statement for the financial years
2003-2008. The findings concluded that private/foreign banks have an edge over the
public sector banks. The two factors of the CAMEL parameters that contribute to the
best performance of the private banking/foreign were the Management Soundness and
Earnings and profitability. Agarwal &Sihna (2010) have analyzed the financial
performance and thereby the sustainability of micro finance institutions (MFIs) in
India by employing the CAMEL model.

23
Sangmi&Nazi (2010) has evaluated the financial performance of 2 top major banks in
the northern India representing the biggest nationalized bank (i.e. Punjab national
Bank, PNB) and the biggest private sector bank (i.e. Jammu and Kashmir Bank, JKB).
These 2 banks were selected in view their role and involvement in shaping the
economic conditions of the northern India, specifically in terms of advances, deposits,
man power employment, branch network etc. The research was mainly conducted on
secondary data from annual reports of the respective banks. And the data used is
related to five financial years (i.e. 2001-2005). The results highlighted that the
position of the banks under study is sound and satisfactory as far as their capital
adequacy, asset quality management capability and liquidity is implicated.
Bodla&Verma (2006) examined the performance of SBI and ICICI through CAMEL
model. Data set for the period of 2000-01 to 2004-05 were used for the purpose of the
study. With the reference to the Capital Adequacy, it concluded that SBI has an
advantage over ICICI. Regarding to assets quality, earning quality and management
quality, it can be said that ICICI has an edge upon SBI. Therefore the liquidity
position of both banks was sound and did not differ much. Mishra (2012) analyzed the
performance of different Indian public and private sector banks over the decade 2000-
2011 using CAMEL approach and found that private sector banks are at the top of the
list, with their performances in terms of soundness being the best.
Hays, Lurgio& Arthur (2009) have utilized CAMEL model to examine the
performance of low efficiency vs. high efficiency community banks in conjunction
with the logistical regression analysis. The analysis used data which are based on
quarterly reports by commercial banks. The discriminant model derived from the
CAMEL parameters is tested among data for 2006, 2007, 2008. Its results concluded
that the model accuracy floats from approximately 88% to 96% for both original and
cross-validations data sets.
Bhayani (2006) analyzed the performance of new private sector banks through the
help of the CAMEL model. Four leading private sector banks – Industrial Credit
&Investment Corporation of India, Housing Development Finance Corporation, Unit
Trust of India and Industrial Development Bank of India - had been taken as a sample.
With respect to predicting banks failure, Barker and Holdsworth find evidence that
CAMEL ratings are useful, even after controlling a wide range of publicly available

24
information about the condition and performance of banks (Barker, D., and
Holdsworth, D., 1993). Prasuna(2003) analyzed the performance of Indian banks by
adopting the CAMEL Model. The performance of 65 banks was studied for the period
2003-04. The author concluded that the competition was tough and consumers
benefited from better services quality, innovative products and better bargains
1.7 Researchmethodology
The research methodologycontains research design, sample selection, sources of the
data obtained and the method of the data analysis applied for the study.
1.7.1 Research design
The study uses descriptive analysis as well as the comparative analysis to
measure, analyze and evaluate the performance of the commercial banks.
CAMEL, a ratio based model is applied to evaluate the performance of the
commercial banks under the various criteria. CAMEL is a ratio-based model to
evaluate the performance of banks. It is an instrument to rate/rank the banks. The
present study is a descriptive research study based on analytical research design.
The components of the CAMEL are described below:
i. Capital Adequacy: Capital is the amount of own fund available to support
the bank's business and act as a buffer in case of adverse situation. Bank
capital creates liquidity for the bank. Capital adequacy is the level of
capital required by the banks to enable them withstand the risks such as
credit, market and operational risks they are exposed to in order to absorb
the potential loses and protect the bank's debtors. Capital adequacy ratio
shows the internal strength of the bank to withstand losses during crisis.
Capital adequacy reflects the equity portion on the total assets of the banks
and strong capital strength of the banks. It is important for a bank to
maintain depositors’ confidence and preventing the bank from going
bankrupt.
ii. Assets quality: The bank's asset is another bank specific variable that
affects the profitability of a bank. The bank asset includes among others
current asset, credit portfolio, fixed asset, and other investments. More

25
often than not the loan of a bank is the major asset that generates the major
share of the banks income. Loan is the major asset of commercial banks
from which they generate income. The quality of loan portfolio determines
the profitability of banks.
iii. Management efficiency: Management Efficiency is one of the key internal
factors that determine the bank profitability. Management efficiency state
how the management is effectively and efficiently performing in the
banks. Management efficiency is a much needed one for every firm to
function successfully in the market. The capability of the management to
deploy its resources efficiently, income maximization, reducing operating
costs can be measured by financial ratios.
iv. Earning efficiency: Earnings are a vital one for every firm as well as
banks. It shows how much the banks have earned for the year. It basically
determines the profitability of bank and explains its sustainability and
growth in earnings in future. Strong earnings of the banks show the
stability of the bank to successfully continue its present operations and
future operations.
v. Liquidity: Liquidity is another factor that determines the level of bank
performance. Liquidity refers to the ability of the bank to fulfill its
obligations, mainly of depositors. According to Dang (2011) adequate
level of liquidity is positively related with bank profitability Liquidity of
the banks indicates its ability to meet current liabilities. Liquidity is much
needed for every firm for their day to day operations. Every bank tries to
have sufficient sources of funds on acceptable terms to meet present and
anticipated liquidity needs.
1.7.2 Sample selection
The purposive sampling has been used for the study. Out of 30 commercial banks
only 5 banks are elected for the study. The selected samples for the study are:
i. Standard Charted Bank Limited
ii. Nabil Bank Limited
iii. Nepal Bank Limited

26
iv. Kumari Bank Limited
v. Everest Bank Limited
1.7.3 Sources of data
The sources of the data will be the secondary data .The secondary sources of the data
will be collected mainly from the annual report of the selected commercial banks
which are published by them
1.7.4 Data analysis
The collected data will be analyzed employing the ratio analysis according to
the necessity of the CAMEL rating system The ratios used for the CAMEL
parameters are calculated based on the annual reports of the individual bank.
The calculation is done separately for each of the parameters and the ratios
related to each parameter are taken on an average. The average values are used
to rank the banks. Higher average value of the ratios will rank higher. For
finding the average value arithmetic mean will be used . The standard
deviation also is used to show the degree of fluctuation among the variable.
The collected data will be analyzed using Microsoft Excel 2010.The ratios
that will be used for the study are:
Parameters Ratio
Capital Adequacy Capital adequacy ratio
Debt –equity ratio
Government Securities to Total Investments
Total equity to Total Asset
Asset Quality Total investment to total assets ratio
Total Loans and advances to Total Assets
Loan loss provision to Total loans
Non-performing loans to total loans and advances

27
Table 8 : List of CAMEL Ratios
Theother statistical tools used for data analysis are as follows:
Arithmetic mean ( X ) =
N
X
Standard deviation (σ) =
 
N
XX 
2
Parameters Ratios
Management
Efficiency
Total Loans and Advances to Total Deposit
Profit per employee
Return on Equity
Business per employee
Earning ability Return on Assets
Net interest income to Total income
Net interest margin to total Assets
Liquidity Liquid Asset to Total Asset
Liquid Asset to Total Customers Deposit
Quick Ratio

28
CHAPTER – II
DATA ANALYSIS AND MAJOR FINDINGS
2.1 DATA ANALYSIS AND PRESENTATION
Presentation means the presentation of the collected data through table; figure etc.
Presentation is the process of understanding the study or the report and calculating the
opinion. An analysis of a data means the process where the statement or the report
gets resolve by breaking them into simple statement. Analysis means to find out
something and give opinion about the presented data.This chapter covers the
presentation of the collected secondary data into diagrams like bar diagram,line
diagram etc. The collected data are interoperated using the statistical tools like mean,
standard deviation .Major portion of the collected data are analyzed through the
various standards and parameters of the CAMEL ratios .The chapter also covers the
major findings obtained from the analysis of data based on the CAMEL parameters.
The following are the parameters on which the data are analyzed.
2.1.1 Capital Adequacy
Capital is the amount of own fund available to support the bank's business and act as
a buffer in case of adverse situation. Bank capital creates liquidity for the bank.
Capital adequacy is the level of capital required by the banks to enable them
withstand the risks such as credit, market and operational risks they are exposed to in
order to absorb the potential loses and protect the bank's debtors. Capital adequacy
ratio shows the internal strength of the bank to withstand losses during crisis. Capital
adequacy reflects the equity portion on the total assets of the banks and strong capital
strength of the banks. It is important for a bank to maintain depositors’ confidence
and preventing the bank from going bankrupt. The parameters used for capital
Adequacy are:
2.1.1.1 Capital Adequacy Ratio (CAR)
This ratio is propounded to ensure that banks can take up a reasonable level of losses
arising from operational losses. The higher the CAR ratio, indicates stronger the bank

29
and the more will be the protection of investors. The banks need to maintain 9%
capital adequacy ratio as per NRB.
Mathematically,
CAR =
Tier−1 capital+Tier−2 capital
Risk Weighted Assests
Tier 1 capital includes permanent shareholders’ equity; perpetual non-cumulative
preference shares, Disclosed reserves and Innovative capital instruments. Tier 2
capitals include undisclosed reserves, Revaluation reserves of fixed assets and long-
term holdings of equity securities, general provisions.
The CAR of the banks is represented in the following table:
Name of
bank
Capital Adequacy Ratio (%)
2009 2010 2011 2012 2013 Mean s.d Rank
Everest 11.34 10.77 10.43 11.02 11.59 11.03 0.45 3
Kumari 11.56 12.34 13.76 12.20 12.17 12.40 0.81 2
Nabil 10.70 10.50 10.58 11.01 11.59 10.87 0.44 4
Nepal 13.94 11.13 10.15 5.82 0.59 8.32 5.21 5
Standard 14.70 14.51 14.22 13.93 12.54 13.98 0.86 1
Table 8: Capital Adequency Ratio
The given table 9 shows the CAR of the banks from the period 2009 to year 2013.In
the given period Standard Charted Bank Limited Nepal secured the first position with
13.98 followed by Kumari Bank and Everest Bank Limited. Nepal Bank secured the
last position . Most of the banks are found to have a consistent CAR . The CAR is
represented in the figure as:

30
Figure 1: Capital Adequacy ratio
2.1.1.2 Debt- Equity Ratio
This ratio represents the degree of leverage of a bank. It shows how much proportion
of the bank business is financed through equity and how much through debt. It is
calculated by dividing total borrowings with shareholders’ net worth. Higher ratio is
an indication of less protection for the depositors and creditors and vice-versa.
Mathematically,
Debt-equity ratio =
Total debt
Total equity
The debt-equity ratio of the banks is represented as:
Name of bank Debt-Equity Ratio (Times)
2009 2010 2011 2012 2013 Mean s.d Rank
Everest 15.75 13.99 13.85 12.36 12.61 13.71 1.34 5
Kumari 11.39 10.47 8.25 10.87 9.62 10.12 1.22 2
Nabil 13.01 12.59 11.73 10.59 9.93 11.57 1.30 4
Nepal 9.33 9.18 10.62 9.53 9.28 9.59 0.52 1
Standard 12.12 11.23 10.91 9.91 8.88 10.45 1.25 3
Table 9: Debt Equity Ratio
0
2
4
6
8
10
12
14
16
2009 2010 2011 2012 2013
Capital Adequacy Ratio
everest
kumari
nabil
nepal
standard

31
The above table 10 shows the debt-equity ratio of the banks during the period 2009-
2013. The Nepalese commercial banks are found to have higher debt –equity ratio.
Nepal bank Limited secured the first position with the lowest debt equity ratio of
9.59.the second and third position are hold by Kumari Bank Limited and Standard
Charted Bank respectively Everest Bank Limited secured the last position with the
debt –equity ratio of 13.71.The debt –equity ratio is represented in the figure as
follows :
Figure 2: Debt Equity ratio
2.1.1.3 Government securities to Investment
This ratio reflects the risk involved in a bank’s investment. It is calculated by dividing
the amount invested in government securities by total investment. Since government
securities are risk-free, higher the proportion of government securities in total
investment, lower will be the risk involved in a bank’s investment and vice versa.
Mathmatocally,
Government securities to investment ratio =
𝐺𝑜𝑣𝑒𝑟𝑛𝑚𝑒𝑛𝑡 𝑒𝑐𝑢𝑟𝑖𝑡𝑖𝑒𝑠
𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡
The government securities to total investment ratio is shown in table as:
0
5
10
15
20
2009 2010 2011 2012 2013
Debt-equity ratio
everest
kumari
nabil
nepal
standard

32
Name of
bank
Government securities to investment (%)
2009 2010 2011 2012 2013 Mean s.d Rank
Everest 86.51 86.94 92.27 77.17 75.43 83.66 7.11 1
Kumari 71.49 75.33 79.41 87.55 87.51 80.26 7.20 2
Nabil 34.23 58.18 66.85 56.78 48.40 52.89 12.31 4
Nepal 79.10 72.82 72.80 72.08 76.670 74.69 3.04 3
Standard 49.41 42.98 57.69 60.77 37.87 49.74 9.63 5
Table 10: Government to investment ratios
The above table 11 shows the government securities to investment ratio of the
commercial banks from the period 2009 to 2014 .The table shows how the Nepalese
Commercial bank takes less risk by spending more amount of investment in the
government securities .The table shows Everest bank Limited secured the first
position with 83.66% of government securities in the investment followed Kumari
Bank 80.26%.Standard Charted Bank secures the last spot with 49.74% of the
government securitesspended in the investment .The banks are found have more
flexibility in investing in the government securities with ratio to the total investment.
It is represented in the figure as :
Figure 3: Government securities to investment
0
20
40
60
80
100
2009 2010 2011 2012 2013
Government securities to investment
everest
kumari
nabil
nepal
standard

33
2.1.1.4 Equity to Assets
It is also known as capital funds to total assets ratio. It is the ratio of bank capital and
reserves to total assets. This ratio is a measure of the general financial soundness of
the capital structure. Capital and reserves include funds contributed by owners,
retained earnings, general and special reserves, provisions, and valuation adjustments.
Capital includes tier 1 capital (paid-up shares and common stock), which is a common
feature in all countries' banking systems, and total regulatory capital, which includes
several specified types of subordinated debt instruments that need not be repaid if the
funds are required to maintain minimum capital levels (these comprise tier 2 and tier 3
capital). Total assets include all nonfinancial and financial assets. The higher the ratio,
the better is the solvency position of the bank. It is shown in formula as:
Equity to Asset=
Total Equity
Total assests
The equity to assets ratio of the bank is presented in the table as:
Name of
bank
Equity to Assets Ratio (Times)
2009 2010 2011 2012 2013 Mean s.d Rank
Everest 5.96 6.66 6.73 7.48 7.34 6.83 0.605 5
Kumari 8.76 8.71 10.80 9.45 9.41 9.43 0.842 2
Nabil 7.13 7.35 7.85 8.62 9.14 8.02 0.848 4
Nepal 11.80 11.99 10.23 11.00 10.79 11.16 0.727 1
Standard 7.61 8.15 8.39 9.89 10.11 8.83 1.106 3
Table 11: Equity to Asests Ratio
The table 12 shows the equity to total assets ratio of the commercial banks from the
period 2009 to 2013.From the above table, the first position is secured by Nepal Bank
Limited with Equity to assets ratio of 11.16.The second, third and fourth position is
secured by Kumari, Nabil, Nepal Bank respectively. The last position is secured by

34
Standard Charted Bank Limited with Equity to Assets ratio of 8.83.The banks have
It is shown in figure as:
Figure 4: Equity to Assets ratio
2.1.1.5 Composite Capital Adequacy
On the basis of group averages of four ratios of capital adequacy as expressed in table
Bank CAR Debt Equity Government
securities to
investment
Equity -
Assets ratio
Group
Rank
% Rank Times Rank % Rank Times Rank Avg Rank
Everest 11.03 3 13.71 5 83.66 1 5.96 5 3.5 4
Kumari 12.40 2 10.12 2 80.26 2 9.43 2 2 1
Nabil 10.87 4 11.57 4 52.89 4 8.02 4 4 5
Nepal 8.32 5 9.59 1 74.69 3 11.16 1 2.5 2
Standard 13.98 1 10.45 3 49.74 5 8.83 3 3 3
Table 12: Composite Capital Adequacy
From the above table 13, Kumari Bank is ranked at the top with the consistent
performance in all the ratios of the capital adequacy. The second position is hold by
Nepal Bank limited. The third and fourth position is secured by Standard charted
0
2
4
6
8
10
12
2009 2010 2011 2012 2013
Equity to Assestsratio
Everest
Kumari
Nabil
Nepal
Standard

35
Bank and Everest Bank Limited respectively. The last spot is secured by Nabil Bank
due to its poor performance in the above ratios of capital adequacy.
2.1.2 Assets Quality
The bank's asset is another bank specific variable that affects the profitability of a
bank. The quality of assets is an important parameter to examine the degree of
financial strength. The bank asset includes among others current asset, credit
portfolio, fixed asset, and other investments . More often than not the loan of a bank is
the major asset that generates the major share of the banks income. Loan is the major
asset of commercial banks from which they generate income. The quality of loan
portfolio determines the profitability of banks. The asset quality rating is a function of
present conditions and the likelihood of future deterioration or improvement based on
economic conditions, current practices and trends. Asset quality is rated in relation to:
i. The quality of loan underwriting, policies, procedures and practices
ii. The level, distribution and severity of classified assets
iii. The level and composition of nonaccrual and restructured asset
iv. The appropriateness of investment policies and practices
v. The investment risk factors when compared to capital and earnings structure
The following ratios are used for measuring the assets quality:
i. Total investment to total assets ratio
ii. Total Loans and advances to Total Assets
iii. Loan loss Provision to Total Loans
iv. Non -performing loans to total loans and advances
2.1.2.1 Total investment to total assets ratio
This ratio indicates the extent of deployment of assets in investment as against
advances. This ratio is used as a tool to measure the percentage of total assets locked

36
up in investments. A higher ratio shows the conservative policy of a bank to provide
safeguard to the investments against NPASMathmatically,
Total Investment to Total Assests=
𝑇𝑜𝑡𝑎𝑙 𝑖𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑠𝑡
It is shown in table as:
Name of
bank
Total Investment to Total Assets Ratio (%)
2009 2010 2011 2012 2013 Mean s.d Rank
Everest 16.11 12.10 16.74 14.08 14.09 14.62 1.84 2
Kumari 8.14 11.21 17.24 11.70 14.65 12.59 3.47 1
Nabil 24.67 26.07 22.36 22.24 22.28 23.53 1.75 4
Nepal 28.17 12.92 14.82 14.31 15.51 17.15 6.23 3
Standard 50.50 49.35 39.39 31.11 27.94 39.66 10.27 5
Table 13: Total Investment to Assests Ratio
The given table 14 shows the investment to total assets of the commercial
Banks from the period 2009-2014 .The table shows the first rank is secured by the
Kumari Bank Limited with the total investment to total Assests ratio of 12.59%.The
second position is secured by EverestBank Limited with ratio of 14.62%.The top rated
bank in this ratio have adopted the conservative policy to safeguard the investment
The lowest position is of Standard Charted Bank Limited 39.66%.The Nepalese
banks are found to have more flexible investment policy. The following information
is shown in figure as:

37
Figure 5: Total Investment to Assests Ratio
2.1.2.2 Loans and advances to Total Assets
It is a measurement representing the percentage of a bank's assets that are financed
with loans and financial obligations lasting more than one year. The ratio provides a
general measure of the financial position of a company, including its ability to meet
financial requirements for outstanding loans. The ratio has a positive relationship with
quality of the assets of the bank. Higher loan and advance to total assets indicates the
sound financial health of the bank. It is calculated as:
Loans and Advances to Total Assets ratio=
Total loans and advances
Total assests
Name of bank Loans and advances to Total Assets (%)
2009 2010 2011 2012 2013 Mean s.d Rank
Everest 64.69 66.52 66.89 64.34 65.72 65.63 1.11 2
Kumari 78.09 72.07 71.24 67.37 68.50 71.45 2.22 1
Nabil 62.89 61.79 65.30 65.65 63.14 63.75 1.65 3
Nepal 37.03 52.65 48.22 46.96 50.30 47.03 5.99 4
Standard 34.14 39.07 42.06 43.52 50.00 41.76 5.83 5
Table 14: Loans and Advances to Total Assests Ratio
The given table 15 shows the loans and advances to total assets ratio of the
commercial banks from the year 2009-2014.From the table, the first position was
0
10
20
30
40
50
60
2009 2010 2011 2012 2013
Everest
Kumari
Nabil
Nepal
Standard

38
secured by Kumari Bank limited with the total advances and loans to total assests
ratio of 71.45%.The second position was secured by the Everest Bank Limited
followed by Nabil Bank limited and Nepal Bank Limited .The last position was
secured by Standard Charted Bank Limited
The figure is illustrated as :
Figure 6: Loans and advances to Totalassests ratio
2.1.2.3 Non - performing Loans to Total Loans
A non-performing loan is a sum of borrowed money upon which the debtor has not
made his or her scheduled payments for at least 90 days. Bank nonperforming loans to
total loans are the value of nonperforming loans divided by the total value of the loan
portfolio. Non- performing loans to total loans ratio have the negative relationship
with the asset quality of the banks. Lower the ratio better is the quality of the assets
and vice- versa.
The non -performing loans to total loans of the banks are given as:
0
10
20
30
40
50
60
70
80
90
2009 2010 2011 2012 2013
everest
kumari
nabil
nepal
standard

39
Name of
bank
Non- performing loans to total loans (%)
2009 2010 2011 2012 2013 Mean s.d Rank
Everest 0.48 0.44 0.34 0.83 0.62 0.547 0.192 2
Kumari 0.436 0.530 1.12 0.22 3.86 1.23 1.50 4
Nabil 0.80 1.47 1.77 2.33 2.13 1.70 0.60 3
Nepal 4.94 4.86 5.74 5.58 5.23 5.27 0.38 5
Standard 0.51 0.55 0.51 0.52 0.59 0.540 0.034 1
Table 15: Non performing loans to total loans
The given table 16 shows the nonperforming loans to total loans ratio .The lower
ratio indicates the better quality of the assets .The table shows Standard Charted Bank
limited secured the first position with non-performing to total loan ratio of 0.540
followed by Everest Bank limited with ratio of 0.547 and Nabil Bank Limited with
ratio of 0.60.The last position was secured by Nepal Bank Limited with high Non
performing to total ratio of 5.27
The figure is illustrated as :
Figure 7:Non performing loans to total loans
2.1.2.4 Loan loss provision to Total Loan
0
1
2
3
4
5
6
7
2009 2010 2011 2012 2013
everest
kumari
nabil
nepal
standard

40
It is an expense set aside as an allowance for bad loans (customer defaults, or terms
of a loan have to be renegotiated, etc.). It is also known as a "valuation allowance" or
"valuation reserve".It measures the ability of a bank to meet further losses on loans.
The higher the value of this ratio, the worsening the financial health of a bank.
Name of bank Loan loss provision to total loans (%)
2009 2010 2011 2012 2013 Mean s.d Rank
Everest 2.39 2.13 1.90 0.192 0.182 1.36 1.08 2
Kumari 1.36 1.33 2.01 2.69 3.73 2.22 1.00 3
Nabil 1.46 2.30 2.23 2.94 2.67 2.32 0.56 4
Nepal 9.94 5.95 7.61 6.82 5.91 7.25 1.66 5
Standard 1.44 1.35 1.26 1.27 1.33 0.54 0.034 1
Table 16: Loan loss provision to total loans
The given table 17 shows the loan loss provision to total loans of the banks from the
period 2009-2013. Lower loan loss provision to total loans ratio indicates strong
financial health of the banks,In the table ,Standard Charted Bank Limited secured the
first position with the total ratio of 0.54 followed by Everest Bank limited and Nabil
Bank .Nepal Bank limited secured the last position with the ratio of 7.25.The loan
loss provision to total loans ratio of the banks are found to be consistent.
It is illustrated in figure as:
Figure 8: Loan loss provision to total loans
0
2
4
6
8
10
2009
2010
2011
2012
2013
everest
kumari
nabil
nepal
standard

41
2.1.2.5 Composite Assets Quality : on the basis of group averages the
composite assests quality is given as :
Bank Investment
To Assests
Loans and
advances to
Assests
Non-
performing
loans to total
loans
Loan loss
provision to
total loans
Group
Rank
% Rank % Rank % Rank % Rank Avg Rank
Everest 14.62 2 65.63 2 0.547 2 1.36 2 2 1
Kumari 12.59 1 71.45 1 1.23 3 2.22 3 2 1
Nabil 23.53 4 63.45 3 1.70 4 2.32 4 3.75 4
Nepal 17.15 3 47.03 4 5.23 5 7.25 5 4.25 5
Standard 39.66 5 41.67 5 0.54 1 0.54 1 3 3
Table 17: Composite Assest Quality
On the basis of the group averages of four ratios ,asests quality is expressed in the
above table 18. Everest Bank Limited and Kumari Bank Limited secured the first
position in the asset quality with the group average of 2 .It shows the quality of the
assets of the both the banks in all above parameter is excellent .The third position
was held by Standard Charted Bank Limited followed by Kumari.The fourth position
was secured by the Nabil Bank Limited .Nepal Bank secured the last position in the
Assets quality due to the poor performance in the ratios of the assets quality.
2.1.3 Management Efficiency:
Management efficiency is another essential component of the CAMEL model that
guarantee the growth and survival of a bank. Management efficiency means
adherence with set norms, ability to plan and respond to changing environment,
leadership and administrative capability of the bank. Management Efficiency is one of
the key internal factors that determine the bank profitability. Management efficiency
state how the management is effectively and efficiently performing in the banks.
Management efficiency is a much needed one for every firm to function successfully

42
in the market. The capability of the management to deploy its resources efficiently,
income maximization, reducing operating costs can be measured by financial ratios.
The key factors to consider when assessing the management efficiency of a bank are:
i. Adequacy of the policies and procedures covering each area of the credit
union’s operations (written, board approved, followed);
ii. Budget performance compared against actual performance;
iii. Effectiveness of systems that measure and monitor risk;
iv. Risk-taking practices and methods of control to mitigate concerns;
v. Integration of risk management with planning and decision-making;
vi. Responsiveness to examination and audit suggestions, recommendations,
vii. or requirements;
viii. Compliance with laws and regulations;
ix. Market penetration;
The following parameters are used for calculating the management efficiency of the
commercial banks:
i. Total loans and advances to total deposit
ii. Return on Equity
iii. Profit per employee
iv. Business per employee
2.1.3.1 Total Loans and Advances to Total Deposit
This ratio evaluate the efficiency and capability of the bank’s management in
applying the deposits (including receivables) available excluding other funds viz.
equity capital, etc. into rich earning advances. This ratio is shown in table as:
Name of bank Total Loans and Advances to Total Deposit (%)

43
2009 2010 2011 2012 2013 Mean s.d Rank
Everest 71.67 74.54 75.20 71.81 74.85 73.61 1.72 3
Kumari 92.14 84.70 85.94 77.01 76.35 83.23 6.61 1
Nabil 73.87 69.54 76.54 75.63 72.92 73.70 2.72 2
Nepal 38.97 54.93 52.70 49.11 56.53 50.45 6.69 4
Standard 38.69 44.66 48.49 50.43 57.81 48.02 7.07 5
Table 18: Total loans and advances to Total deposits
The given table 19 shows the total loans and advances to total deposits of the banks.
Higher the ratio, more efficient is the management of the banks. The table shows
Kumari Bank Limited secured the first position with Total loans and advances ratio of
83.23%.The second position is hold by Nabil Bank Limited with ratio of 73.71%
followed by Everest Bank Limited and Nepal Bank Limited .Standard Charted
Limited secured the lowest position .It is shown in figure as:
Figure 9: Loan and advances to deposit ratio
2.1.3.2 Return on Equity
It is a measure of the profitability of a bank. In calculation of this ratio, Profit after tax
is expressed as a percentage of equity
ROE =
Net profit after tax
Total equity
The ROE of the banks in period 2009 to 2014 is shown in the following table :
0
10
20
30
40
50
60
70
80
90
100
2009 2010 2011 2012 2013
everest
kumari
nabil
nepal
standard

44
Name of bank ROE (%)
2009 2010 2011 2012 2013 Mean s.d Rank
Everest 28.98 30.14 29.91 26.10 30.47 29.12 1.72 3
Kumari 13.31 17.72 11.34 11.59 10.97 12.99 2.79 4
Nabil 32.93 29.68 29.43 40.68 25.18 31.58 5.78 1
Nepal 4.44 16.66 2.45 2.73 9.88 7.23 6.06 5
Standard 33.58 33.10 30.43 28.35 26.37 30.37 2.88 2
Table 19: ROE
The given table 20shows the ROE of the bank from the period 2009-2014. Higher
ROE indicates better and efficient management .Nabil Bank Limited secured the first
position with ROE of 31.58% followed by Standard Charted Bank Limited and
Everest Bank Limited . Nepal Bank Limited secured the last position .
The ROE is shown in figure as:
Figure 10: Return on Equity
2.1.3.3 Profit per employee:
0
5
10
15
20
25
30
35
40
45
2009 2010 2011 2012 2013
everest
kumari
nabil
nepal
standard

45
It is calculated by dividing the profit after tax earned by the bank with the total
number of employees. The higher the ratio, higher is the efficiency of the
management and vice versa. Mathematically ,
Profit per employee=
Net profit after tax
No.of employees
It is shown in the table as :
Name of
bank
Profit per employee (in lakhs)
2009 2010 2011 2012 2013 Mean s.d Rank
Everest 11.96 14.64 15.89 17.44 22.87 16.56 4.06 3
Kumari 8.45 12.17 7.24 8.42 7.73 8.80 1.95 4
Nabil 20.41 20.45 20.45 34.13 22.76 23.4 5.94 2
Nepal 1.02 3.05 0.44 0.62 2.71 1.57 1.22 5
Standard 26.15 25.31 26.08 27.56 26.82 26.38 2.88 1
Table 20: Profit per Employee
The given table 21 shows the profit per employee of the commercial banks from the
period 2009-2013.Higher profit per employee gives the bank higher Rank .Standard
Charted Bank limited secured the first position with the profit of 26.38 lakhs followed
by Nabil Bank limited 23.40 lakhs .Nepal bank limited secured the last position with
the total profit per employee of 1.57 lakhs .It is represented in the figure as :

46
Figure 11: Profit Per Employee
2.1.3.4 Business per Employee
Business per employee reveals the productivity and efficiency of human resources of
bank. It is followed as a tool to measure the efficiency of employees of a bank. Higher
the ratio, the better it is for the bank and vice versa.Mathmatically,
Business per employee =
Total loans and advances +Total deposit
No.of employees
It is shown in the table as :
Name of
bank
Business per employee (in crores)
2009 2010 2011 2012 2013 Mean s.d Rank
Everest 10.71 11.34 12.29 13.74 15.69 12.76 1.99 3
Kumari 11.79 12.38 9.10 11.90 11.84 11.40 1.30 4
Nabil 12.85 14.10 13.33 14.83 14.80 13.98 0.88 2
Nepal 2.57 2.27 2.49 2.96 3.53 2.76 0.49 5
Standard 12.50 11.86 13.15 12.76 13.71 12.80 0.69 1
Table 21: Business Per Employee
The given table 22 shows the business per employee of the commercial banks
.Higher the business per employee more the efficient the bank .Standard Charted
0
5
10
15
20
25
30
35
2009 2010 2011 2012 2013
everest
kumari
nabil
nepal
standard

47
Bank Limited secured the first position with 13.98 crores business per employee. The
second position is hold by Nabil Bank Limited followed by Everest Bank Limited
.Nepal Bank Limited secured the last position .It is shown in figure as:
Figure 12: Business per employee
2.1.3.5 Composite ManagementEfficiency:
On the basis of group averages of four ratios of Management efficiency as expressed
in table
Name of
Bank
Loan and
advances to
investment
ROE Profit per
employee
Business per
employee
Group
Rank% Rank % Rank In
lakh
Rank In
crores
Rank Avg Rank
Everest 73.61 3 29.12 3 16.56 3 12.76 3 3 3
Kumari 83.23 1 12.99 4 8.80 4 11.40 4 3.25 4
Nabil 73.70 2 31.58 1 23.64 2 13.98 1 1.5 1
Nepal 50.45 4 7.23 5 1.57 5 2.76 5 4.75 5
Standard 48.02 5 30.37 2 26.38 1 12.80 2 2.5 2
Table 22: Composite Management Efficency
0
2
4
6
8
10
12
14
16
2009 2010 2011 2012 2013
everest
kumari
nabil
nepal
standar
d

48
From the above table23 , Nabil Bank Limited secured the first position in the
management efficiency with average group rank of 1.5. Standard Charted Bank
Limited secured the second position with average group rank of 2 followed by the
Everest Bank Limited and Kumari Bank Limited .Nepal Bank Limited secured the
last position with poor performance in the ratios of Management Efficiency.
2.1.4 Earning Ability
The quality of earnings is a very important criterion which represents the quality of a
bank’s profitability and its capability to maintain quality and earn consistently .It
primarily determines the profitability of bank and explains its sustainability and
growth of future earnings. Strong earnings of the banks show the stability of the bank
to successfully continue its present operations and future operations.
Key factors to consider when assessing the Bank’s earnings are:
i. Level, growth trends, and stability of earnings, particularly return on assets;
ii. Quality and composition of earnings;
iii. Future earnings prospects under a variety of economic conditions;
iv. Net interest margin;
v. Net non-operating income and losses and their effect on earnings;
vi. Quality and composition of assets;
vii. Net worth level;
The following parameters are used to determine the earning ability of the commercial
banks :
i. Net profit to total Assets
ii. Interest Income to Total Income
iii. Net Interest Margin to Total Assets
2.1.4.1 Net profit to Total Assets
This ratio reflects the return on assets employed or the efficiency in utilization of

49
assets. It is calculated by dividing the net profits with total assets of the bank. Higher
the ratio reflects better earning potential of a bank in the future.Mathmatically,
Net Profit to Total Assets =
NET PROFIT AFTER TAX
TOTAL ASSESTS
It is shown in table as
Name of bank Net Profit to Total Assets (% )
2009 2010 2011 2012 2013 Mean s.d Rank
Everest 1.73 2.00 2.01 1.95 2.23 1.98 0.181 3
Kumari 1.16 1.54 1.22 1.09 1.03 1.21 0.199 4
Nabil 2.35 2.18 2.31 3.50 2.30 2.53 0.54 2
Nepal 0.52 1.99 0.25 0.30 1.06 0.82 0.72 5
Standard 2.55 2.70 2.55 2.80 2.66 2.65 0.104 1
Table 23: Net profit to total assests
The given table 24 shows the Net profit to Total Assets ratio of the Commercial
Banks. Higher the ratios better the earning ability of the banks .The banks return on
the assets s consistent in nature. From the table we can see Standard Charted Bank
Limited secured the top position with the 2.65 % of return on the Assets followed by
Nabil Bank and Everest Bank Limited .Nepal Bank Limited secured the last position
with 0.82% of return on the Assets .It is shown in the figure as:

50
Figure 13: Net Profit to Total Assest
2.1.4.2 Interest Income to Total Income
Interest income is considered as prime source of revenue for banks. The interest
income to total income reflects the capability of the bank in generating income from
its lending business.Mathematically,
Interest Income to Total Income=
Interest Income
Total Income
It is shown in the table as:
Name of
bank
Interest Income to Total Income (% )
2009 2010 2011 2012 2013 Mean s.d Rank
Everest 75.73 78.83 81.80 79.19 81.56 79.42 2.46 3
Kumari 77.84 80.51 78.22 80.08 81.23 79.58 1.47 2
Nabil 74.00 75.36 75.28 74.28 76.07 75.00 0.84 4
Nepal 80.44 79.90 83.40 80.72 83.62 81.62 1.75 1
Standard 63.54 62.87 69.522 70.61 69.26 67.15 3.66 5
Table 24:Interest income to total income
0
0.5
1
1.5
2
2.5
3
3.5
4
2009 2010 2011 2012 2013
Everest
Kumari
Nabil
Nepal
Standard

51
The given table 25 shows the interest income to total income ratio of the commercial
banks from the period 2009-2013.Higher interest to income ratio shows the better
earning capability of the bank .Higher interest shows more capacity of the banks to
generate the income from the debt. The table shows the first position was secured by
Nepal Bank Limited with the total interest income to total income of 81.62%. the
second position was secured by Kumari Bank limited with 79.58% followed by
Everest Bank limited and Nabil Bank Limited .The last position was secured by
Standard Charted Bank limited .The table shows that majority of the income of the
commercial banks is the interest income obtained from the debt provided by the bank.
It is illustrated in the figure as:
Figure 14: Interest income to Total Income
2.1.4.3 Net interest margin to Total Assets
NIM is the difference between the interest income and the interest expended. It is
expressed as a percentage of total assets. A higher spread indicates the better earnings
given the total assets.
0
10
20
30
40
50
60
70
80
90
2009
2010
2011
2012
2013
everest
kumari
nabil
nepal
standard

52
Nameof
bank
Net interest margin to Total Assets (% )
2009 2010 2011 2012 2013 Mean s.d Rank
Everest 3.17 3.69 3.88 3.73 4.19 3.73 0.181 4
Kumari 3.01 3.32 3.34 4.06 3.46 3.44 0.38 5
Nabil 4.81 4.72 3.97 4.72 4.81 4.25 0.482 1
Nepal 3.99 4.82 4.41 3.16 3.56 3.99 0.65 3
Standard 3.35 3.64 3.91 4.47 4.21 4.06 0.44 2
Table 25: Net interest Margin to total assests
The given table 26 shows the Net interest margin to total assets ratio, higher net
interest margin to total assets creates better earning for the banks and vice versa .The
table shows that Nabil Bank Limited secured the top position with highest net interest
margin of 4.25,the second position was secured by the Standard Charted Bank
Limited with the net interest margin to assets ratio of 4.06 followed by Nepal bank
Limited and Everest Bank Limited .The last position was secured by the Kumari
Bank Limited. The low standard deviation of net interest margin to total assets shows
the rigid policy of the net interest margin of the banks .It is illustrated in the following
figure
Figure 15: Net interest margin to total assests
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
2009
2010
2011
2012
2013
Everest
kumari
nabil
nepal
standard

53
2.1.4.4 Composite earning quality
On the basis of the group averages of threeratios, earning quality is expressed in the
above table:
Bank Net profit to
total Assets
Interest income to
total income
Net interest margin
to total Assets
Group
Rank
% Rank % Rank % Rank Avg Rank
Everest 1.98 3 79.42 3 3.73 3 3 3
Kumari 1.21 4 79.58 2 3.44 4 3.33 4
Nabil 2.53 2 75.00 4 4.25 1 2.33 1
Nepal 0.82 5 81.62 1 3.99 5 3.66 5
Standard 2.65 1 67.15 5 4.06 2 2.66 2
Table 26: Composite earning quality
The table 27 shows the composite earning quality of the banks from the period 2009-
2013.The table shows the first position in the earning quality was secured by the
Nabil Bank Limited with its excellent performance in the various parameters of the
earning, The second position was secured by Standard Charted Bank limited followed
by Everest Bank Limited .Nepal Bank Limited secured the last position with its poor
earning performance.
2.1.5 Liquidity:
Liquidity is another factor that determines the level of bank performance. Liquidity
refers to the ability of the bank to fulfill its obligations, mainly of depositors.
According to Dang (2011) adequate level of liquidity is positively related with bank
profitability Liquidity of the banks indicates its ability to meet current liabilities.
Liquidity is much needed for every firm for their day to day operations. Every bank
tries to have sufficient sources of funds on acceptable terms to meet present and

54
anticipated liquidity needs. Risk of liquidity can have an effect on the image of bank.
Liquidity is a crucial aspect which reflects bank’s ability to meet its financial
obligations. An adequate liquidity position means a situation, where organization can
obtain sufficient liquid funds, either by increasing liabilities or by converting its assets
quickly into cash.
The following ratios are used for assessing the Liquidity:
i. Liquid Assets to total Assets
ii. Liquid Assets to total Deposits
iii. Liquid Assets to current liabilities
2.1.5.1 Liquid Assets to Total Assets
This ratio measures the overall liquidity position of the bank. The liquid assets include
cash in hand, money at call and short notice, balance with Reserve bank of India and
balance with banks (India and Abroad). The total assets include the revaluation of all
the assets.
Mathematically,
Liquid Assets to Total Assets=Liquid Assests
Total Assests
It is shown in the table as:
Name of
bank
LiquidAssests to Total Assets (% )
2009 2010 2011 2012 2013 Mean s.d Rank
Everest 18.01 17.99 13.68 19.75 18.92 17.67 2.34 3
Kumari 9.55 13.25 5.67 14.75 11.60 10.97 3.53 5
Nabil 10.81 10.40 10.52 11.94 13.38 11.41 1.25 4
Nepal 34.26 33.72 36.28 37.87 33.64 35.15 1.85 1
Standard 13.17 9.40 25.28 19.82 21.79 17.89 6.47 2
Table 27: Liquid assests to total assests

55
The given table 28shows the liquidity to total AssestsRatio.Higher the ratio, higher is
the liquidity.Nepal Bank Limited secured the top spot with the ratio of 35.15%
followed by Standard Charted Bank and Everest Bank Limited .Kumari Bank
Limited secured the last spot with the Liquid assets to total Assets ratio of 10.97.It is
shown in the figure as :
Figure 16: Liquid Asests to total assests
2.1.5.2 Liquid Assets to Total Deposits
This ratio measures the liquidity available to the depositors of a bank. It is calculated
by dividing the liquid assets with total deposits. Higher the ratio more the liquidity of
the bank .It is calculated as :
Liquid Assest to Total Deposit =
Total Liquid Assest
Total deposits
It is shown in the following table:
0
5
10
15
20
25
30
35
40
2009 2010 2011 2012 2013
everest
kumari
nabil
nepal
standard

56
Name of
bank
Liquid Assests to Total Deposit (% )
2009 2010 2011 2012 2013 Mean s.d Rank
Everest 19.97 21.31 16.95 22.07 21.57 20.37 2.06 3
Kumari 11.09 16.13 10.13 15.04 14.29 13.34 2.59 5
Nabil 12.70 12.82 12.85 12.87 15.59 13.37 1.24 4
Nepal 36.06 35.18 36.31 39.60 37.81 36.99 1.74 1
Standard 26.90 19.34 30.26 25.14 25.25 25.40 3.992 2
Table 28:LiquidAssests to Deposits
The table 29 shows the liquidassets to deposit ratio of the commercial banks from the
period 2009-2013 .The first position was secured by Nepal Bank limited with the
total liquid assests to total deposit ratio of 36.99. This indicates adequate availability
of the liquidity to the depositors In Nepal Bank Limited .The second position was
secured by the Standard Charted bank limited followed by Everest Bank Limited and
Nabil Bank Limited .The last position was secured by the Kumari Bank Limited .
Figure 17: Liquid Assests to total Deposits
0
5
10
15
20
25
30
35
40
45
2009 2010 2011 2012 2013
everest
kumari
nabil
nepal
standard

57
2.1.5.3 Quick ratio
Quick ratio is an indicator of a company’s short-term liquidity. The quick ratio
measures a company’s ability to meet its short-term obligations with its most liquid
assets. For this reason, the ratio excludes inventories from current assets, and is
calculated as follows:
Quick ratio =
Quick Assets
current liabilities
Where,
Quick Assets=Current assets−Inventories−Prepaid Expenses
The given table shows the quick ratio of the commercial banks
Name of bank Quick Ratio(Times)
2009 2010 2011 2012 2013 Mean s.d Rank
Everest 5.54 7.61 5.41 6.76 5.35 6.13 1.008 1
Kumari 3.27 4.03 4.7 3.76 3.66 3.88 0.53 5
Nabil 4.35 4.51 4.16 3.95 4.47 4.28 0.23 4
Nepal 3.10 3.48 4.67 6.69 4.20 4.43 1.40 3
Standard 4.38 2.57 6.45 5.67 6.42 5.10 1.64 2
Table 29: Quick Ratio
The given table 31 shows the quick ratio of the banks from the period 2009-2013 .
Higher the ratio the more quick the bank is meet its current obligation. The first
position is held by Everest Bank Limited with quick ratio of 6.13 followed by
Standard Charted Bank limited and Nepal Bank limited .The last position is secured
by Kumari Bank Limited. It is shown in figure as

58
Figure 18:Quick Ratio
2.1.5.4 Composite Liquidity
On the basis of the group averages of threeratios, liquidity quality is expressed in the
table 31:
Bank Liquid Assets to
Total Assets
Liquid Assets to
Total deposits
Quick Ratio Group
Rank
% Rank % Rank Times Rank Avg Rank
Everest 17.67 3 20.37 4 6.13 1 2.67 3
Kumari 10.97 5 13.34 5 3.88 5 5 5
Nabil 11.41 4 13.37 3 4.28 4 3.67 4
Nepal 35.15 1 36.99 1 4.43 3 1.67 1
Standard 17.89 2 25.40 2 5.10 2 2 2
Table 30: composite Liquidity
2009
2010
2011
2012
2013
0
2
4
6
8
standard
nepal
nabil
kumari
everest

59
The table shows the composite liquidity of the commercial banks from the period
2009-2013.The first position was secured by Nepal Bank limited followed by
Standard Charted Bank limited and Everest Bank Limited .The last position was
secured by Kumari Bank Limited .
2.1.6 Composite ranking:
In order to assess the overall performance of Commercial banks, composite rating was
calculated andresults are presented in table 32.
Bank C A M E L Average Rank
Everest 3.5 2 3 3 2.67 2.834 2
Kumari 2 2 3.25 3.33 5 3.116 4
Nabil 4 3.75 1.5 2.33 3.67 3.05 3
Nepal 2.5 4.25 4.75 3.66 1.67 3.356 5
Standard 3 3 2.5 2.66 2 2.632 1
Table 31: Composite Ranking
The above table shows the composite ranking of the commercial Banks from the
period 2009-2013 on basis of the CAMEL ratios .The first position on capital
adequacy was secured by Kumari Bank Limited .Everest Bank Limited and Kumari
secured the first position on assets quality. Nabil Bank Limited secured the first
position on Management efficiency and earning quality .Nepal Bank secured the
first position onliquidity. On the basis of overall performance first position was
secured by the Standard Charted Bank Limited .The second ,third, fourth position
were secured by Everest Bank limited, Nabil Bank Limited and Kuamri Bank
Limited .The last position was secured by Nepal Bank Limited .

60
2.2 Major findings
The major findings obtained from the study are as follows :
i. The debt–equity ratio of theNepalese commercial banks are very high .This
shows major portion of the financing of the commercial banks are done
through the debt especially through customer deposits.
ii. The government securities to investment ratio of the commercial banks are
high.The commercial banks want to make their investment secured by
investing major portion of the investment in thegovernment securities.
iii. The investment to assets ratio of the commercial Banks is found to be at low
level. The major reason behind this may be lack of proper is the conservative
policy of the banks to safeguard the assets against NPAS.
iv. The loans and advances to total assets ratio of the commercial banks are
high.Major portion of the assets of these banks are the loans and advances
provided by the banks to the people.
v. The nonperforming loans total loans of the banks are low .This indicates the
bank have adopted aggressive policy in collecting the receivables.
vi. The profit per employee and business per employee of the Nepal Bank limited
is low due to more no of employees.
vii. The profit per employee and business per employee of other banks are at
satisfactory level.
viii. The return on the equity of the commercial banks is almost constant.
ix. The return on assets of the commercial banks are low.This shows the banks
are able to earn less amount of profit compare to their assests.
x. The interest income to total income ratio of the commercial banks are high.
The major portion of income of the banks is the interest earned from the loans
provided by the banks.
xi. The liquid assests to total deposits of the commercial banks are low .this
shows the banks have low capacity to meet the demand from depositors.

61
CHAPTER- 3
SUMMARY AND CONCLUSION
3.1 Summary
Performance of the financial institution is always given a much concerned .An
effective performance of the financial institutions is very much vital for the
sustainable economic development of the country. Especially, theperformance of the
banksare very much crucial because they play an important role in the allocation of
the economic resources in the country.
Banks’ performance are vital in the developing countries like because they channel
funds to the investors from the depositors to assist the investors to invest in their
business .For the sustainable economic development banks need to be profitable and
operate smoothly.Performance evaluation of the banks is very important as it gives
the economic scenario of the country.Evaluating and comparing the performance of
the banks with one another gives us the idea of position of the banks in the banking
sector of the country.
Performance of the Commercial Banks can be evaluated using various techniques.
One of the effective techniques for the performance measurement and comparisons of
the Commercial Bank is CAMEL Rating System. CAMEL rating system is one of the
great systems to compare the financial performance of the banks.A CAMEL rating is
a supervisory rating system developed in the U.S.A to classify the bank’s overall
condition. The use of the CAMEL factors in evaluating a bank’s financial health has
become widespread among regulators.
Performance evaluation of the Commercial Banks on the basis of the CAMEL factors
gives us the general idea about the current situation of the banks in the Country. The
performance of the banks is evaluated using parameters like Capital Adequacy, Assets
Quality, Management Efficiency, Earning Quality and Liquidity.
For the performance evaluation on basis of the CAMEL parameters 18 standard
CAMEL ratios were used for the study. The ratios were used to highlight the
performance of the selected banks on the basis of various aspects.

62
The five year performance of the selected Commercial Banks on the CAMEL ratios
was used to show the performance variation of the banks on the CAMEL ratios .The
study showed the performance of the banks in Nepal are good at some ratios,while the
performance was satisfactory on the some ratios.Performance of the banks on some of
the ratios needed an improvement.
On the Capital Adequacy Kumari Bank Limitedwas ranked at the top followed by
Nepal Bank Limited .Nabil Bank was ranked at the bottom on the Capital Adequacy
.On Assests quality, Everest Bank limited and Kumari Bank limited was ranked at the
top followed by the Standard Charted Bank Limited .Nabil Bank limited secured the
first position in Management Efficiency and Earning quality. Nepal Bank limited
secured the first position in the liquidity parameter.
On the basis of the overall performance of the banks on the five parameters of The
CAMEL ratios ratings were distributed to the banks .On the basis of overall
performance of the banks , Standard Charted Bank Limited secured the first position
with its excellent performance in the CAMEL ratios .Everest Bank Limited was able
to secure the second position with its consistent good performance in the CAMEL
ratios .Nabil Bank limited secured the third position followed by Kumari Bank
Limited .Nepal Bank Limited secured the last position on the CAMEL rating with ts
poor performance in the majority of the CAMEL ratios .

63
3.2 Conclusion
From the research, several things were concluded .The performance of the
commercial banks were evaluated using the CAMEL Model. According to the
CAMEL Model , the performance of the selected commercial banks were satisfactory
on the basis of overall performance of the commercial banks. There wasn’t much
deviation found in the performance of the commercial banks when compared to one
another .
The studied concluded that in terms of Capital Adequacy ,Kumari Bank Limited was
ranked at the top with its consistent performance in all the parameters of the Capital
Adequacy, meanwhile Nabil Bank limited was at the bottom with its poor
performance. In terms of Assets quality , Everest Bank Limited and Kumari Bank
Limited was ranked at top and Nepal Bank was ranked at the top . Nabil Bank
Limited secured the first position on the management efficiency .Nepal Bank limited
secured the first position on the liquidity.
On the basis of the overall performance , Standard Charted Bank Limited secured the
first position .The study concluded the bank had safe and sound operations through
strong performance . The second position was secured by Everest Bank Limited.
Everest Bank had safe and sound operation through satisfactory performance .
Nabil Bank Limited secured the third position .It indicated the performance of the
banks is marginal and weak to some extent . Kumari bank limited secured the third
position .It indicated that the bank had below average performance and requires
close supervision. Nepal Bank limited secured the last position . It indicated the bank
had an unsatisfactory performance and there are certain chances of the failure of the
banks

64
REFERENCES
Adesina,K.S.(July,2012).A Comparative Performance Evaluationof the NigerianBanking
Sectorin the Post – 2005 Consolidation:Throughthe Camel RatingSystem.
InternationalJournalof Businessand SocialScience,259-268.
Altan,D. M. (28 october,2014).Performance Analysisof BanksinTurkeyUsingCAMEL
Approach. InternationalAcademicConference,(pp.21-32).Malta .
Anojan, V.&Nimalathasan,BV.&.(2014). A Comparative Studyof Financial Performance of
State and Private SectorCommercial BanksinSri Lanka: AnApplicationof CAMELRating
System.ICCM.
Aspal,S.K. (july2013). A Camel Model Analysisof State BankGroup. World Journalof Social
Sciences,36-55.
B.Nimalathasan.(2008). A Comparativestudy of financialperformanceof Banking sectorin
Bangladesh:An Application of CAMELRating system. Bangladesh:Universityof
Bucharest,Economicand AdministrativeSeries.
Baral, K.J. (December,2005).HealthCheck-upof Commercial Banksinthe Frameworkof
CAMEL:A Case Studyof JointVenture BanksinNepal. TheJournalof Nepalese
BusinessStudies,41-55.
Dang, U. (2011). The CAMELRating SystemIn Banking Supervision. ArcadaUniversityof
AppliedSciencesInternational Business.
DESAI,D. S. (August,2013).Performance Evaluationof IndianBankingAnalysis.
Udaipur,Rajasthan:International Journal of ResearchinHumanitiesandSocial
Sciences.
EverestBankLimited.(2008/2009-2012/2013). AnnualReport.
K.V.N.Prasad.(October,2011).Evaluatingthe performance of Regional Rural BanksinIndia:
An Applicationof CAMELModel. InternationalRefereed Research Journal,61-67.
Kabir,M. A. (September,2012).Performance AnalysisthroughCAMELRating:A Comparative
Studyof selectedCommercialBanksinBangladesh. Journalof Politics& Governance,
16-25.
Kumari Bank Limited.(2008/2009-2012/2013). AnnualReport.
Lakhtaria,N. J.(April,2013).A Comparative Studyof the SelectedPublic. Indian Journalof
Research,37-38.
M, W. A.(2010). CAMEL(S) ANDBANKSPERFORMANCE.
Nabil BankLimited.(2008/2009-2012/2013). AnnualReport.

65
Nepal BankLimited.(2008/2009-2012/2013). AnnualReport.
NIMALATHASAN,B.(2008). A COMPARATIVESTUDY OF FINANCIALPERFORMANCEOF
BANKINGSECTORIN BANGLADESH-AN APPLICATION OFCAMELRATINGSYSTEM.
Economicand AdministrativeSeries,141-152.
Prof.Dr. Mohi-ud-DinSangmi,D.T.(2010). AnalyzingFinancial Performanceof Commercial
Banksin India:Applicationof CAMEL Model.40-50.
Reddy,D.K. (February,2012).Relative Performance of Commercial BanksinIndiausing
Camel Approach.1-5.
StandardChartedBank Limited.(2008/2009-2012/2013). Annualreport.
Venkatesh,D.J.(n.d.).Comparative performance evaluationof selectedcommercial banksin
kingdomof Bahrain.1-40.
VincentOkothOngore,G.B. (2013). Determinantsof Financial Performanceof Commercial
Banksin Kenya. InternationalJournalof Economicsand FinancialIssues,237-252.

summer project (1)

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Viewers also liked

Viewers also liked (20)

Similar to summer project (1)

Similar to summer project (1) (20)

summer project (1)