Bank One - Camel-ratio-analysis.docx

Introduction The acronym "CAMELS" refers to the six components of a bank's condition that are assessed. 1. 2. 3. 4. 5. 6.

Capital adequacy Asset quality Management Earnings Liquidity Sensitivity to market risk

Ratings are assigned for each component in addition to the overall rating of a bank's financial condition. The ratings are assigned on a scale from 1 to 5. Banks with ratings of 1 or 2 are considered to present few, if any, supervisory concerns, while banks with ratings of 3, 4, or 5 present moderate to extreme degrees of supervisory concern.

Rating 1 Indicates strong performance and risk management practices that consistently provide for safe and sound operations. Management clearly identifies all risks and employs compensating factors mitigating concerns.

Rating 2 Reflects satisfactory performance and risk management practices that consistently provide for safe and sound operations. Management identifies most risks and compensates accordingly.

Rating 3 Represents performance that is flawed to some degree and is of supervisory concern. Risk management practices may be less than satisfactory relative to the bank's or credit union's size, complexity, and risk profile. Management may not identify and provide mitigation of significant risks. Both historical and projected key performance measures may generally be flat or negative to the extent that safe and sound operations may be adversely affected.

Rating 4 Refers to poor performance that is of serious supervisory concern. Risk management practices are generally unacceptable relative to the bank's or credit union's size, complexity and risk profile. Key performance measures are likely to be negative.

Rating 5 Considered unsatisfactory performance that is critically deficient and in need of immediate remedial attention. Such performance, by itself or in combination with other weaknesses, directly threatens the viability of the bank or credit union.

Ratio Analysis Capital to Risk Weighted Assets Ratio The ratio is defined by CRAR =

Tier I Capital + Tier II Capital

X

100

Risk Weighted Assets

2018 Capital Adequacy Ratio

2017 12.93%

2016 12.93%

2015 12.92%

Tier 1 Capital Ratio CRAR gives the capital adequacy of a bank by taking into consideration both tier 1 capital and tier 2 capital. Tier 1 capital ratio gives the capital adequacy of a bank by only considering the tier 1 capital of a bank. 2018 Tier 1 Capital Ratio

2017 9.40%

2016 9.24%

2015 10.12%

Return on Assets Return on Assets is an indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings. It is given by the formula

2018 Return on Assets

2017 1.179%

2016 1.23%

2015 1.11%

Return on Equity The amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. ROE is expressed as a percentage and calculated as: Return on Equity = Net Income/Shareholder's Equity

2018

2017 16.33%

Return on Equity

2016 15.6%

2015 14.1%

Interest Income to Total Assets Ratio This ratio depicts the asset utilization. The assets of the banks consist of the loans and advances and the investments portfolio. The interest income is the income which is earned on these assets. Interest Income to Total Assets =

Interest Income Total Assets

2018 Interest income to total asset

2017 3.40

2016 4.04

2015 4.44

Net Interest Income to Total Assets Ratio This ratio signifies the percentage of net interest income earned on total assets.

Net Interest Income/TA =

Interest income – Interest Expense Total Assets

2018

2017 2.25%

Net Interest income to total asset

2016 2.76%

2015 2.99%

Interest Expense Ratio The ratio of interest expense to income would reflect the efficiency of raising resources and their deployment. Interest Expense Ratio

= Interest Expense Interest Income 2018

Interest Expense ratio

2017 0.339%

2016 0.316%

2015 0.326%

Net NPAs to Net Advances The level of NPAs is recognized as a critical indicator for assessing banks' credit risk, asset quality and efficiency in allocation of resources to productive sectors. Net NPAs to Net Advances =

Net NPAs Net Advances

2018 Net NPAs to Net Advances

2017 1.87%

2016 0.664%

2015 0.162%

Liquid Assets to Total Assets This ratio gives tells us about the company’s ability to meet short term liquidity requirements.

= Liquid Assets Total Assets

2018 Liquid Assets to Total assets

2017 0.133

2016 0.181

2015 0.180

Lending to Sensitive Sectors The sectors considered as sensitive are Agriculture, manufacturing and Tourism Sector. The lesser the exposure to these sector the better it is for the banks. = Total Lending to the 3 Sectors Total Advances 2018 Lending to sensitive sectors

2017 5.123

2016 3.193

2015 3.21

Comparative Snapshot The following table gives a relative snapshot of bank one for 3 consecutive years. Ratio Capital Adequacy Ratio Tier 1 Capital Ratio Return on Assets Return on Equity Interest Income/TA NII/TA Interest Expense Ratio Net NPAs/Net Advances Liquid Assets/TA Sensitive Sector Lending

Optimum 8% 6% 5% 15-20% 2 2 LOW 1:2 LOW

2017 12.93 9.40 1.179 16.33 3.40 2.25 0.33 1.87 0.133 5.123

2016 12.93 9.24 1.23 15.6 4.04 2.76 0.316 0.664 0.181 3.193

2015 12.92 10.12 1.11 14.1 4.44 2.99 0.32 0.162 0.180 3.21