Analyzing Financial Performance of Commercial Banks in Ethiopia: CAMEL Approach
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Date
2015-05
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Addis Ababa University
Abstract
The objective of this study was to analyze the financial performance of Ethiopian
Commercial Banks using CAMEL approach and rank the banks based on their
performance as well as to test the existence of the relationship between the selected
CAMEL factor measurements with the profitability measures. The financial performance
of Fourteen Commercial Banks examined by using panel data from year 2010 to year
2014.The study used quantitative research approach and secondary financial data are
analyzed by using multiple linear regression model for two profitability measures: ROE
and ROA. Fixed effect regression model was applied to investigate the impact &
relationship of CAMEL factors: Capital adequacy, Asset Quality, Management efficiency,
Earning and Liquidity with bank profitability measures separately. The empirical result
shows that capital adequacy, Asset Quality and Management efficiency have negative
relation whereas earning and liquidity shows positive relationship with both profitability
measures with strong statically significance except Capital Adequacy which is
insignificant for ROA whereas Asset quality for ROE. The study suggests focusing and
reengineering the banks internal drivers could enhance the profitability of commercial
banks in Ethiopia. Furthermore the ranking result based showed the first one by capital
adequacy, asset quality and liquidity ratio was Bunna International Bank while
Commercial Bank of Ethiopia by Management efficiency and Earning ratio and finally
Wogagen Bank was the first by the composite rate
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Keywords
CAMEL approach, Performance