Lesson 5- CAMELS Approach

Activity
According to the performance of Sampath bank in 2018 and 2019
1. What variables you considered?
2. What the variable indicates? (What indicate by Higher and lower ratios?)
3. Based on this, comment on the two years performance (2019 & 2018)
4. What is your final conclusion about the bank performance?

1. Capital Adequacy
1. Total Deposits
Total Equity
Tier 1 capital
Tier 2 capital

2. Examiners assess the bank’s capital adequacy through capital trend analysis
If Tier 1 capital and Tier 2 capital percentages are higher than the required minimum rates
which introduced by CBSL, it indicates that the investor protection ability of the bank from
bankruptcy.

3. Tier 1 capital (Goal- Over 8.5%)

2018- 12.08%
2019- 14.22%
Tier 2 capital= (Goal- Over 4%)
2018- 3.65%
2019- 3.9%
Total capital (Tier 1 and 2 capital) = (goal- Over 12.5%)
2018- 15.73%
2019- 18. 12%
The ratios stood well above the minimum ratios prescribed by the Basel III capital
requirement and also notably ahead of industry peers.
 2. Asset Quality
1. NPL
Gross Advances
2. If NPL to Gross Advances has a significant growth that indicate that bank’s asset quality
(bank’s loan quality) is lower.

3. NPL
2018- 3.69%
2019- 6.37%
Gross Advances
2018- Rs. 670.3 Bn
2019- Rs. 719.6 Bn
A marked decline in asset quality was observed in 2019 as NPL had increased.
A rise in NPLs were observed among all the sectors in 2019 because of the impact of the drought
during the first quarter of the year and the Easter Sunday Attack.

3. Management Quality
1. Operational expenses
Total assets
2. This ratio shows how efficiently managers have managed the operations of the bank. If
Operational expense to Total assets ratio is increased, it indicates that the management
ability to ensure the safe operation of the bank is decreased.
3. Op. Exp.
2018- Rs.19.3 Bn
2019- Rs.20.4Bn
Total Assets
2018- Rs. 914.2Bn
2019- Rs. 962.4Bn
According to the figures, Operational expenses to Total Assets ratios in 2018 and 2019 are 2.11%
and 2.12%.
 4. Earnings
1. Net Interest Margin (Interest Income, Interest expenses, Average Assets)
2. This reflects the bank’s ability to earn consistently. If this ratio is increasing it determines that
the bank’s profitability and sustainability in growth of earning.
3. NIM
2018- 4.41%
2019- 4.46%

5. Liquidity
1. Loans to Deposits (Total loans/ Total Deposits)
Cash to Deposits (Cash and cash equivalents/ Total Deposits)
2. This reflects the adequacy of bank’s assets of liquidity and fund management practices.
3. Total Loans
2018- Rs.670.3Bn
2019- Rs. 719.6Bn
Cash and cash equivalents
2018-Rs. 19.1 Bn
2019-Rs.17.8 Bn
Total Deposits
2018- Rs.698.1Bn
2019- Rs.718.3Bn
• LTD
2018- 96%
2019- 100.1%
• CTD
2018- 2.74%
2019- 2.48%

6. Sensitivity to Market Risk

1. Sensitivity= Bank Assets/ Total Assets of Banking System
2. This determines the bank’s sensitivity to particular risk exposures arise in the market. (Foreign
exchange rates, commodity prices, equity prices etc.)