Published Paper


Evaluating the Soundness of Commercial Banks in Ethiopia: Rating and Ranking the Performance by Using CAMEL Framework

Parneet Kaur & Kebrysfaw Getahun
Punjabi University, Patiala, School of Management Studies
Page: 65-81
Published on: 2024 June

Abstract

This research tries to critically evaluate the soundness of Ethiopian commercial banks by using CAMEL framework, the most compressive method suggested by bank supervisory institutions. Audited Financial report from 2012-2023 and Guidelines from the central bank of Ethiopia and the Basel committee were used to determine and rate banks based on the five important parameters of the framework. Accordingly,17 commercial banks which are established before 2013 were rated and compared by using each parameter separately and by applying composite rating. The industry average rating of 1 in capital adequacy ratio shows that Ethiopian commercial banks are sound in having strong capital foundation which can enables them to withstand any shocks and fluctuations in the economy. The result also reveals that they possess quality asset which is an indication of strong loan administration practice. The industry average of 3 in management efficiency, earning quality and liquidity performance of the banks is an indication of the need for improvement and moderate supervisory intervention in these parameters.  Apart form 7 banks, the average composite rating of the remaining banks shows satisfactory level of performances during these sample periods.   

 

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