Function of camel model for comparing privatized and private banks

Abstract

The project in question deals with the role that CAMEL Model plays in analyzing a Financial Institution, especially in case of a bank. The main focus of the study relates to understanding the reliability of CAMEL Model while analyzing the banking sector and also its reliability in understanding the difference in performance of privatized and private banks in Pakistan. One thing worth mentioning about the significance of CAMEL model ratios; instead of using all available financial ratios only CAMEL Model ratios are used because of the simple fact that they are much more relevant towards banking institutions. The problem statement of this research states that there is a direct relationship between a bank’s performance and the interpretation of Financial Ratios by the CAMEL Model; capital adequacy, liquidity etc. Financial Statements / Ratios are used for secondary data analysis and also to determine the CAMEL Model’s significance. The ratio analysis is mainly done on four banks; two of them represent the privatized banks and the other two are compatible private banks. Initially all four banks are analyzed individually and then a comparison between private and privatized banks is discussed. Financial statements of the past three years i.e. 2009, 2010 and 2011 have been selected for AKBL, Bank Alfalah (private banks), UBL and ABL (privatized banks). The study shows that the CAMEL ratings obtained through CAMEL Composite (which uses all ratios of the CAMEL Model) give different results than the CAMEL ratings given by the State Bank of Pakistan.