Determining Bank performance using CAMEL rating: A comparative study on selected Islamic and Conventional Banks in Bangladesh
DOI:
https://doi.org/10.18034/abr.v6i3.40Keywords:
Bank Performance, Islamic Bank, Conventional Bank, CAMELAbstract
The present article seeks to examine the determinants of the bank profitability in a developing country like Bangladesh and to compare the performance of Islamic and conventional banks during the period 2008 - 2014. Specifically working within the Bangladeshi financial sector, the analysis is confined to the domestic commercial banks operating in the Bangladeshi financial sector during the period 2008-2014. In order to achieve the study objectives and to answer some questions, the ratio analysis and CAMEL has been used. The study found that the higher capital ratio, Tier-1, and growth in total deposits for Islamic banks than conventional banks. On the other hand, Islamic banks are not able to good perform with ROA, ROE and cost-to-income ratio while conventional banks showed satisfactory performance in utilizing funds which was proved in this analysis as high ROA, ROE and cost-to-income ratio. This study shows that management efficiency regarding operating expenses positively and significantly affects the banks’ profitability.
JEL Classifications: G2, G22, H12, G14
The present article seeks to examine the determinants of the bank profitability in a developing country like Bangladesh and to compare the performance of Islamic and conventional banks during the period 2008 - 2014. Specifically working within the Bangladeshi financial sector, the analysis is confined to the domestic commercial banks operating in the Bangladeshi financial sector during the period 2008-2014. In order to achieve the study objectives and to answer some questions, the ratio analysis and CAMEL has been used. The study found that the higher capital ratio, Tier-1, and growth in total deposits for Islamic banks than conventional banks. On the other hand, Islamic banks are not able to good perform with ROA, ROE and cost-to-income ratio while conventional banks showed satisfactory performance in utilizing funds which was proved in this analysis as high ROA, ROE and cost-to-income ratio. This study shows that management efficiency regarding operating expenses positively and significantly affects the banks’ profitability.
JEL Classifications: G2, G22, H12, G14
Downloads
References
A., Monroe, G.S., Gasbarro, D., & Zumwalt, J.K. (2008). Accounting and capital market measures of risk: evidence from Asian banks during 1998–2003. Journal of Banking and Finance, 32 (4), 480–488.
Abbasoglu, O.F., Aysan, A.F. and Gunes, A., 2007. Concentration, Competition, Efficiency and Profitability of the Turkish Banking Sector in the Post-Crises Period. Banks and Banking System, 2(3), pp.106-115.
Altman, E.I. (1968) Financial ratios, discriminant analysis and the prediction of corporate bankruptcy. The Journal of Finance, 23(4), 589–609.
Altman,et al. (1977). ZETA analysis: A new model to identify bankruptcy risk of corporations. Journal of Banking and Finance, 1, 29–54.
Altunbas, Y.S., Carbo, E., Gardener, P.M., Molyneux, P.( 2007). Examining the relationships between capital, risk and efficiency in European banking. Journal of European Financial Management, 13 (1), 49–70.Agusman,
Annual Report, AB Bank Ltd. 2008, 2009, 2010, 2011, 2012, 2013, 2014. Retrieved from https://www.abbl.com
Annual Report, AIBL. 2008, 2009, 2010, 2011, 2012, 2013, 2014. Retrieved from https://www.al-arafahbank.com
Arif, M. (1998). ‘‘Islamic banking”. Asian-Pacific Economic Literature, Vol.2, No. 2, pp.46-62
Bank Asia. 2008, 2009, 2010, 2011, 2012, 201, 2014. Annual Report. Retrieved from https://www.bankasia-bd.com
Bennaceur, S. and M. Goaied. 2008. ‘The Determinants of Commercial Bank Interest Margin and Profitability: Evidence from Tunisia’, Frontiers in Finance and Economics, 5(1): 106–30.
Berger, A. (1995b). The relationship between capital and earning in banking. Journal of Money, Credit, and Banking, 27, 432-56.
Bhattachrjee, D.D. (1989). Productivity Measurement in the Nationalized Commercial Banks of Bangladesh: A Multivariate Analysis. The Dhaka University Studies, Part-C, XII (1).
Bikker, J.A. (2010). Measuring Performance of Banks: An Assessment. Journal of Applied Business and Economics, 11(4): 141-159.
Bourke, P. (1989). Concentration and Other Determinants of Bank Profitability in Europe, North America and Australia. Journal of Banking and Finance, 13(1), 65–79.
Cole, R.A., & Gunther, W.J. 1995. A CAMEL rating’s shelf life. Financial Industry Studies, Federal Reserve Bank of Dallas, December. Available at http://dallasfed.org/banking/fis/fis9502.pdf.
Dar, H., & Presley, J.R. (2000), ‘‘Lack of profit loss sharing in Islamic banking: management and control imbalances.” International journal of Islamic Financial Services, Vol. 2, No.2.
De Young, R., 1998. Management quality and X-inefficiency in national banks. Journal of Financial Services Research 13 (1), 5–22. http://dx.doi.org/10.1023/A:1007965210067.
Demirguc-Kunt, A., & Huizinga, H. (2000). Financial structure and bank profitability. World Bank Policy Research Working Paper Series No. 2430.
EBL. 2008, 2009, 2010, 2011, 2012, 2013, 2014. Annual Report. Retrieved from https:// www.ebl.com.bd
FSIBL. 2008, 2009, 2010, 2011, 2012, 2013, 2014. Annual Report. Retrieved from https://www.fsiblbd.com
Hassan, M. K. (2003). Textbook on Islamic Banking (1st edition). Dhaka: Islamic Economics Research Bureau.
Hassan, M., 2007. People’s Perceptions towards Islamic Banking. A Fieldwork Study on Bank Account Holders’ Behaviour in Pakistan, 153-176.
Hassan, M.K., & Bashir, A.M. (2003), “Determinants of Islamic profitability”, paper presented at Economic Research Forum Conference 10th Annual Conference, available at: Retrieved from https://www.philadelphia.edu.jo/courses/accountancy/files/Accountancy/kabir_Bashir.pdf
Iannotta, G., Nocera, G., & Sironi, A. (2007). Ownership structure, risk and performance in the European banking industry. Journal of Banking and Finance, 31 (7), 2127–2149.
IBBL. 2008, 2009, 2010, 2011, 2012, 2013, 2014. Annual Report. Retrieved from https://www.islamibankbd.com
IFIC. 2008, 2009, 2010, 2011, 2012, 2013, 2014. Annual Report. Retrieved from https:// www.ificbank.com.bd
Islam, M. & Salim, M (2011), “Analysis of the Operational Efficiency of Commercial Banks: A Study of the Islamic Banks in Bangladesh”, Journal of Banking & Financial Services. Volume 5, Number 1, July 2011, 83-96.
Jin, J.Y., Kanagaretnam, K., Lobo, G.J., 2011. Ability of accounting and audit quality variables to predict bank failure during the financial crisis. Journal of Banking and Finance 35 (11), 2811–2819. http://dx.doi.org/10.1016/j. jbankfin.2011.03.005.
Kosmidou, K. (2008). ‘The Determinants of Banks’ Profits in Greece during the Period of EU Financial Integration’. Journal of Managerial Finance, 34(3), 146–59.
Kumar, P.R., Ravi, V., 2007. Bankruptcy prediction in banks and firms via statistical and intelligent techniques: a review. European Journal of Operational Research, 180 (1), 1–28.
Mannasoo K, Mayes D (2009) Explaining bank distress in Eastern European transition economies. J Bank Finance 33:244–253
Oshinsky, R. and Olin, V.(2006). Troubled Banks: Why Don’t They All Fail? , FDIC Banking Review (Vol.18, PP. 22).
Pettway, R.H., (1976). Market tests of capital adequacy of large commercial banks. Journal of Finance 31 (3), 865-875.
Poghosyan, T., Cihák, M., 2011. Distress in European Banks: an analysis based on a new dataset. Journal of Financial Services Research 40 (3), 163–184. http://dx. doi.org/10.1007/s10693-011-0103-1.
Prime bank. 2008, 2009, 2010, 2011, 2012, 2013, 2014. Annual Report. Retrieved from https://www.primebank.com.bd
Rafiuddin, A., & Alam, Z. (2012). Islamic Banks and Conventional Banks in the UAE before and After Recession. International Journal of Financial Management, 1(1), 70-79.
Ravisankar, et al. 2010. Bankruptcy prediction in banks and firms via statistical and intelligent techniques: a review. European Journal of Operational Research 180 (1), 1–28. http://dx.doi.org/10.1016/j.ejor.2006.08.043.
Rime, B., (2001). Capital requirements and bank behavior: empirical evidence for Switzerland. Journal of Banking and Finance, 25 (4), 789–805. Retrieved from https://www.en.wikipedia.org/wiki/CAMELS_rating_system
Rivard, R. J. and C. R. Thomas. 1997. ‘The Effect of Interstate Banking on Large Bank Holding Company Profitability and Risk’, Journal of Economics and Business, 49(1): 61–76.
Rosely, S. A., & Bakar, A. (2003). Performance of Islamic and mainstream banks in Malaysia. International Journal of Social Economics, 30(12), 1249-1265.
Ross, and Westerfield, 2005. Corporate Finance, 7th edition
Samad, A., & Hassan, M. K. (2000). The performance of Malaysian Islamic bank during 1984-1997: an exploratory study. Thoughts on Economics, 10(1-2), 7-26.
Sarker, M. A. A. (1999). Islamic Banking in Bangladesh: Performance, Problems & Prospects. International Journal of Islamic Financial Services, 1 (3).
Shrieves, R.E., Dahl, D., (1992). The relationship between risk and capital in commercial banks. Journal of Banking and Finance, 16 (2), 439–457.
SIBL. 2008, 2009, 2010, 2011, 2012, 2013, 2014. Annual Report. Retrieved from https://www.siblbd.com
SJIBL. 2008, 2009, 2010, 2011, 2012, 2013, 2014. Annual Report. Retrieved from https://www.shahjalalbank.com.bd
Van Horne, (2005), Fundamentals of Financial Management (13th Edition) 13th Edition
Wanke, P., Azad, M. A. K., & Barros, C. P. (2016). Financial distress and the Malaysian dual baking system: A dynamic slacks approach. Journal of Banking & Finance, 66, 1-18. doi: http://dx.doi.org/10.1016/j.jbankfin.2016.01.006
Wanke, P., Azad, M. A. K., Barros, C. P., & Hadi-Vencheh, A. (2015). Predicting performance in ASEAN banks: an integrated fuzzy MCDM–neural network approach. Expert Systems, Article first published online: 18 DEC 2015. doi: http://dx.doi.org/10.1111/exsy.12144
Westerfield, R.W. (2005), Corporate Finance, International Edition, 7th ed, McGraw-Hill, New York
Yudistira, D. (2003). ‘‘Efficiency of Islamic Banks: an Empirical Analysis of 18 Banks,”. Finance No.0406007, Econ WPA.
--0--
Published
Issue
Section
License
Asian Business Review is an Open Access journal. Authors who publish with this journal agree to the following terms:
- Authors retain copyright and grant the journal the right of first publication with the work simultaneously licensed under a CC BY-NC 4.0 International License that allows others to share the work with an acknowledgment of the work's authorship and initial publication in this journal.
- Authors are able to enter into separate, additional contractual arrangements for the non-exclusive distribution of the journal's published version of their work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgment of its initial publication in this journal. We require authors to inform us of any instances of re-publication.
How to Cite
