CAMEL Rating

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We need keen sense on CAMEL rating of any financial institution for invest our coin risk averse:

Meaning of CAMEL: • C-Capital adequacy : «adequately capitalized» must operate under an approved net worth restoration plan. Examiners evaluate capital adequacy by assessing progress toward goals set forth in the plan. Ratio calculation of Capital adequacy: Total Capital/Total Assets The examiner also considers the interrelationships with the other areas: Capital level and chungminhtaichinh trend analysis; Compliance with risk-based net worth requirements; Composition of capital; Interest and dividend policies and practices; Adequacy of the Allowance for Loan and Lease Losses account; Quality, type, liquidity and diversification of assets, with particular reference to classified assets; Loan and investment concentrations; Growth plans; Volume and risk characteristics of new business initiatives; Ability of management to control and monitor risk, including credit and interest rate risk; Earnings.

Good historical and current earnings performance enables a credit union to fund its growth, remain competitive, and maintain a strong capital position; Liquidity and funds management; Extent of contingent liabilities and existence of pending litigation; Field of membership; and Economic environment.
• A-Assets : the examiner evaluates the impact of other risks such as interest rate, liquidity, strategic, and compliance. Ratio calculation : 01.NPL/Total Loan, 02. NPL/Total Equity, 03. Bad Loan/Total Loan • M-Management Capability: it's also address some or all of the following risks: credit, interest rate, liquidity, transaction, compliance, reputation, strategic, and other risks, also calculation: Earning growth rate • E-Earnings: Examiners evaluate «core» earnings: that is the long-run earnings ability of a credit union discounting temporary fluctuations in income and one-time items, calculation is like that : 01.

ROA=Net Interest Income/Assets growth rate, 02. ROE= Net Interest Income/Shareholder Equity • L-Liquidity : Examiners review (a) interest rate risk sensitivity and exposure; (b) reliance on short-term, volatile sources of funds, including any undue reliance on borrowings; (c) availability of assets readily convertible into cash; and (d) technical competence: calculation is , 01.

Total Deposit/Total Asset, 02. Total Loan/Total Deposit

Ratings of 4 and 5 indicate that the credit union exhibits an unacceptably high exposure to risk. Management does not demonstrate an acceptable capacity to measure and manage interest-rate risk, or the credit union has an unacceptable liquidity position. Analyses under modeling scenarios indicate that a significant deterioration in performance is very likely for credit unions rated 4 and inevitable for credit unions rated 5.

Ratings of 4 or 5 may also indicate levels of liquidity such that the credit union cannot adequately meet demands for funds. Such a credit union should take immediate action to lower its interest-rate exposure, improve its liquidity, or otherwise improve its condition. The level of earnings and capital provide inadequate support for the degree of balance sheet risk taken by the credit union.

Here rating 01- 05, 01 is best and 05 is worst according calculation ratio (adsbygoogle = window.adsbygoogle || []).push({});