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建立人际资源圈Literature review of CAMEL rating system
2013-11-13 来源: 类别: 更多范文
Introduction
Banking supervision is increasingly important because significant loan losses and bank failures from the 1980s till now. Financial crisis in recent years, CAMEL is a useful system to examine the safety and soundness of banks. This paper aims to determine whether the CAMEL framework plays a crucial role in banking supervision. The purpose is to identify the benefits as well as drawbacks. This paper also introduces other bank rating system. The paper firstly starts to collect theory relevant to the empirical research, and then draws conclusions from the findings by relating them back to the literature.
Rating method
In developed countries, the regulatory authorities of the rating system as the representative of the United States, only five indicators: capital adequacy, asset quality, management, profitability and liquidity. So just to make up the alphabetical CAMEL, therefore also known as "camel" rating method (will be described in detail later).
The United States has three world's leading rating agencies: Standard & Poor's, Moody's and Fitch. Because as an independent, not biased in favor of any market participant, not subject to any tendencies, so the results are more neutral, the rating agencies in the market and more widely applied in developed countries. Bank rating index system is divided into seven categories: economic capital, risk sensitivity and risk management, management, profitability, operating values, operating environment, and the ownership and management rights (Morgan, D. P. 2000).
Strengths of "Camel" rating system
Bank credit rating procedures and the lack of scientific standardization. Bank credit rating is not tenure, due to changes in internal and external factors, even in the credit rating of the validity of the original assessment of the level may still be changed up or down, so to use static analysis and dynamic analysis of a combination of methods is a better option, Bank credit rating changes in a timely manner to carry out follow-up monitoring. (Bernanke, Ben S. 2007) Western countries rating agencies in the credit ratings of the contract is valid, the rating monitoring system should regularly be rated object of operation, risk profile, credit level tracking and monitoring, including macro-economic cycle, industry rise and fall, the international market, the political environment and other objective factors impact on banks' credit rating.
"Camel" rating method, because of its effectiveness, has been adopted by most countries in the world. Camel rating system facilitates regulatory agencies to fully grasp the risk profile of commercial banks and implementation of similar Bank classification regulation, targets to take measures so that the rational allocation of regulatory resources, improves regulatory efficiency, in order to better analyze and evaluate banks to provide the basis for the risk profile.
(Barker, David, and Holdsworth, David 1993) gauge the capital adequacy, bank supervisors currently use the capital risk asset ratio. The adequacy of capital is examined based upon the two most important measures such as Capital Adequacy Ratio (CAR) CAR = (Tier-I Capital + Tier-II Capital)/Risk Weighted Assets. Capital to Risk-weighted Assets ratio, and the ratio of capital to assets. This capital ratio is required to meet a minimum of 8% set by the Bank for International Settlement (BIS). Weighted problem loans / total loans "and" non-performing loans / tier one capital "" as a measure of asset quality.
In CAMEL system, (Zhang Xin, 2012) divided financial institutions into three categories according to the degree of risk - normal classes, secondary, doubtful and loss categories, the third one is called problem loans, problem loans weighting = 20% × times grade loans + 50% × doubtful loans + 100% × loss loans. China Merchants Bank and OCBC Singapore adopted loan classification in 2009 to 2011, the quality of assets of the two banks were ≤5%, high asset quality, risk is very small, China Merchants Bank weighted problem loans to total loans is higher than the proportion of OCBC Bank Singapore.
Asset Quality mainly on risk assets; expected number of loans; the possibility of concentration of loans as well as credit problems; adequacy of the allowance for doubtful accounts. (Uniform Financial Institutions Rating System, 1997, p. 4). According to Grier (2007), management mainly on banking policy, business plans, management experience and experience level, training of staff and so on.
Earnings mainly on the bank in the past one or two years of net income situation. Profitability evaluation criteria: the capital gains rate of 1% as a standard, in order to be evaluated. Changes on ROE = Net Earnings / Average assets (Uniform Financial Institutions Rating System 1997, p. 5). (Zhang Xin, 2012) Compared three-year average, the average return on assets of China Merchants Bank (ROAA) and return on capital (ROE) were lower than OCBC Bank. But in the end of 2011, China Merchants Bank two indicators have been basically reached the ratio of OCBC Bank, China Merchants Bank's profitability continues to progress, while OCBC three years’ ROAA and ROE are declining.
Zhang Xin, (2012) Through the capital adequacy, asset quality, management, earnings and liquidity comparison. First, in the capital adequacy and management aspects, China's commercial banks and foreign commercial banks still have large gaps. Second, asset quality, profitability aspects of Chinese commercial banks and the level of foreign commercial banks are close, slightly higher than the Bank of China's foreign bank, China's commercial banks’ two indicators are in progress, the 2011 China Merchants the average rate of return on assets is higher than Singapore's OCBC Bank.
Liquidity calculated that the ratio of total loans and total deposits, the ratio of the bank as a whole is the basic measure. Management of assets and liabilities, the ability to control; frequency and the ability to borrow money quickly to raise funds. Liquidity evaluation criteria: horizontal comparison with the size of the bank, in order to determine the advantages and strengths. (Uniform Financial Institutions Rating System 1997, p.8). Grier (2007) suggests that liquidity is considered to be the most important element in the CAMEL rating system however, it is subject to measure as the asset quality examination.
Market risk sensitivity, bank interest rate and exchange rate risk management capabilities resilience, examine its banking assets, the market value of equity, debt and capital and so on. There are two comprehensive evaluation methods: a simple identification.
DuPont model
With this method, assets are measured at their gross book value rather than at net book value in order to produce a higher return on equity (ROE) = Profit Margin (Profit/Sales) * Total Asset Turnover (Sales/Assets) * Equity Multiplier (Assets/Equity). It is also known as "DuPont identity". Operating efficiency, asset use efficiency, Financial leverage.
Many companies have adopted Economic Value Added (EVA), or cash return (CFROE) as a measure of company performance, some companies are widely adopted balanced scorecard or performance assessment methods similar to scorecard for corporate performance assessment.
Sun Jing, (2009) found that in the long consultation process, many companies (especially private companies or small, medium enterprises) are not accustomed to using the ROE to reflect shareholder value in return, companies main concern is the level of profits, revenue, gross margin and other indicators. In fact, the rational use of ROE (ROE) for enterprise management in many companies is a very convenient means, but also to help the company's management during the company's operations and to seek improved methods.
Moody's and S & P ratings
The world's leading rating agencies have established a bank rating model. Moody's were designed for developed markets and developing markets two bank rating methodology. Although in different markets, the rating analyzed index and related index weights, but the framework of Moody's bank ratings is basically used index composed of seven pillars. Standard & Poor's credit analysis model also uses a wide range of quantitative and qualitative analysis, and for different regions and different banking institutions determine the different analytical also consider the bank where the specific economic, legal, banking range, accounting system and competitive environment, choose the appropriate analysis of indicators and analysis weights. (Livingston, M., Wei, J. D., & Zhou, L. 2010)
Standard & Poor's and Moody's rating process includes quantitative and qualitative analysis. Quantitative aspects of the analysis mainly refer to financial analysis, especially analysis of the company's financial statements. Qualitative analysis is about the management aspects of the quality of the analysis, including the company's competitive analysis and industry is expected to grow, etc., and a special focus on the legal angle. (Bryman, Alan and Bell, Emma 2003). Standard & Poor's and Moody's credit rating agencies and other well-known international rating mainly targeted at a variety of bonds and debt instruments. Issuer rating is subject to assessment of the solvency of the evaluation object itself; a variety of debt instruments rating is based on the issuer's credit rating, considering the characteristics of each debt instrument and the level of protection to determine its final credit rating. (Barr, Richard S. et al. 2002).
Conclusion
Barr et al. (2002 p.19) states that “CAMEL rating has become a concise and indispensable tool for examiners and regulators”. Hirtle and Lopez (1999, p. 4) state that the bank’s CAMEL rating is highly confidential, and only exposed to the bank’s senior management for the purpose of projecting the business strategies, and to appropriate supervisory staff.
Some how Curry, Elmer and Fissel, 2009.found CAMELS still has disadvantages: (1) assessment unit was difficult to check false accounts, leading to assessments error (2) when the study management level, due to the subjective factors result in higher assessment or underestimate (3) can not calculate the expected risk (sudden performance factors made significant changes as a result of the bank's events, etc.) (4)quality of personnel management difficult review (5)information about the index can be used only after the analysis, and can not be used to predict future trends banks. (6) risk assessors may appear secretly manipulated. Using the financial institutions' capital adequacy, asset quality, management, profitability and liquidity "and other five evaluation index, the scoring system to operate and manage five commercial banks to rating level (a maximum, five minimum). "Camel" indicators and evaluation criteria of the rating system. The CAMEL Analysis of key indicators and evaluation criteria "Camel" rating system involved: the capital adequacy ratio (capital / risk assets), requires that the ratio of 6.5% to 8%.
