CAMEL” refers to an analysis method which is applied on the banks to measure their financial and non financial performance. This method is used in terms of providing the rating to the bank. The word “CAMEL” stands for capital adequacy, asset quality, management, earnings and liquidity. Ratings are assigned to the bank for each of the component in order to measure the financial condition of the bank.
The ratings are given to the bank on the scale of 1 to 5. If a bank has 1 or 2 credit rating than it depicts about the normal financial condition of the banks whereas in case of 3, 4 and 5 credit rating, the banks are moderate to extreme degree of supervisory vision. In order to evaluate and CAMEL analysis, the below two banks have been taken into concern:
Citi group:
Citi group has been founded in the year of 1812 at New York. The bank is the consumer division of “Financial services multinational Citi group”. The main products of the bank include saving accounts, credit cards, term deposit, cash management accounts, wealth management and loans.
The main eservices of the bank are financial services. The parent company “Citi Bank” is running various subsidiary companies in order to manage the activities and operations of the bank. Currently, around 2649 branches are operated by the bank in 19 countries which includes 1494 branches in Mexico and 723 branches in the US market (Home, 2018). In order to compare the performance of Citi Bank with industry peer, JP Morgan limited has been chosen because of the leadership state in the industry.
JP Morgan chase limited:
JP Morgan chase and co is investment banking and commercial institutions which has been founded in the year of 1799 by JP Morgan. Headquarter of the bank is in New York, United states. It is the largest bank in the US market. And it has been ranked as 6th largest bank at global level in terms of the total assets. The company is serving its products and services at international level. According to the current report, around 2,50,000 people are working with the company in order to improve the operations and run the activities efficiently (Home, 2018). The main subsidiary companies of the bank are Chase bank, J P Morgan & co, J P Morgan Cazenove and one equity partners.
CAMEL analysis:
CAMEL analysis is a rating system which is used in the banks to regulate and examine the financial position. It evaluates the overall position and performance of the bank in order to determine all the associated strength and weakness. The profit and loss account, balance sheet and other financial notes are important in order to identify the performance and offer the rating to the bank. The CAMEL analysis study has been performed on Citi bank along with the J P Morgan to identify the rating of the bank.
Capital adequacy:
Capital adequacy measures the overall capacity of the bank in order to manage the losses and meet the short term and long term obligations towards the customers without affecting the operations. The main role is played by the quality of capital of the bank in order to meet the obligations of the business. In the case, in order to measure the capital adequacy level of the business, tier 1 risk based capital ratios and total risk based capital ratios have been measured (Shen, Huang & Hasan, 2012). The ratio is defined as tier 1 capital / risk weighted assets and total assets (tier 1 capital + tier 2 capital) dividend by risk weighted average assets of the business.
The graph explains that both the banks have sufficient capital adequacy in order to handle the solvency pressure on the basis through available assets. Among the banks and comm. Bank assets, the total risk based capital ratio of Citi group bank is highest (Annual report, 2018). It has been found that few changes have occurred into the capital adequacy position of all the three banks in last 3 years because of the various internal and external changes.
Tier 1 capital adequacy ratio:
The graph explains that both the banks have sufficient capital adequacy in order to handle the pressure of solvency in case of long and short term financial position. Among the banks and comm. Bank assets, the capital adequacy of JP Morgan is highest. It has been found that few changes have occurred into the capital adequacy position of all the three banks in last 3 years because of the various internal and external changes (Annual report, 2018).
It explains that on the basis of tier 1 capital and total capital adequacy ratio, the performance of Citi group is better and the performance of JP Morgan is on the second position.
Asset quality:
Asset represent about all the resources of bank such as current and fixed resources, loans, real estates, investments and all the transaction of the banks which are off balance sheet. In order to measure the asset quality of the banks, following ratios have been analyzed:
Earning assets to total assets:
Earning assets to total assets measure the total profit which has been generated by the bank against the total available assets of the business. The earning assets to total assets of the business represent that performance of Citi bank is better in the industry. Highest earnings have been generated by Citi bank in the industry which represent about better asset efficiency level of the business (Golin & Delhaise, 2013).
Net loans and leases to core deposits:
Net loans and leases to core deposit measure the total loans and leases given by the bank against the total deposits in the bank. The net loans and leases to core deposit of the business represent that performance of Citi bank is better in the industry (Annual report, 2018). Highest loans and leases are given by the Citi bank in the industry which represent that the efficiency level of the Citi bank is quite higher than the JP Morgan chase and co.
It explains that the asset efficiency level of the Citi group bank is quite better than the industry level and the peer level. However, the associated risk level of the bank is also higher in the industry because company has offered more loans than the available funds of the business.
Management:
Management quality of the banks also plays an important role in a business. The board of directors, top level management and other executive members of the bank are the key persons who are responsible in order to manage the banking functions. On the basis of these parameters, the management effectiveness has been checked out such as how the market condition has been changed, how well the responsibilities and duties have been performed by the management of the company (Turner, 2009). The management quality study has been done on the Citi group and J P Morgan to measure the performance and offer rating accordingly.
Total Noninterest expenses to assets:
Total noninterest expenses to assets explain total expenses which have been incurred in the business against the total assets of the business. The below graph explains that the level of expenses of Citi group is lowest in the market in 2018. Among the banks and comm. Bank assets, the expenses have been controlled by the business in efficient manner. It explains that the performance of Citi group is way better.
Total Noninterest income to assets:
Further, the total noninterest income to assets explains total income which has been generated in the business against the total assets of the business. The below graph explains that the level of expenses of Citi group is highest in the market in 2018 (Annual report, 2018). Among the banks and comm. Bank assets, the more income has been generated by the bank in efficient manner. It explains that the performance of Citi group is way better.
CRA score:
The CRA score depicts the 2.83 ratings of the company on an average on the basis of the available 4 rating agencies. It explains that the overall rating of the company is average and it would help the bank to meet the common goals of the business.
On the basis of the management analysis on the bank, it has been found that the performance of management and functionality level of Citi group is way better than the competitors and the industry performance (Van Gestel & Baesens, 2008). The management of the company explains that the top level management and executives make better decisions at regular basis in order to maintain and improve the overall performance of the business. All of the aspects are taken care by them in order to meet the objectives of the business. Annual report (2017) explains that along with the time, various strategies and policies have been changed by the management in order to meet the mission and vision of the bank and improve the credibility of the business.
Earnings:
Income from all the operations, functions and activities are measured in the earnings analysis against the turnover, resources and other factors of the business. Though, in the bank parameters, the efficiency of the bank is checked with respect to the total capital in order to cover all the additional and potential losses and the risk of the business (White, 2010). In order to measure the efficiency level of the business, below studies and analysis has been done:
Return on assets:
It represents about the total income against the available resources of the business. It measures the total profitability level of the business in order to reveal that how much profit has been generated by the business against the total invested amount of the business.
The figure 7 explains that the return on assets of Comm. Banks assets are higher in the industry and further the level of J P Morgan is better than the Citi group. It explains that the overall position of the Citi group is not better in terms of the management of the earnings against the available assets of the business.
Net interest margin:
Net interest margin represents about the difference among the interest income which has been generated by the bank and the interest amount which has been paid to the lenders. It measures the total interest amount level of the business in order to reveal that how much interest has been generated by the business. The below graph explains that the net interest margin of Citi group is highest in the market (Annual report, 2018). It explains that the overall position of the Citi group is better in terms of the management of the net interest amount.
On the basis of the earnings analysis on the bank, it has been found that the performance of management and functionality level of Citi group is way better than the competitors and the industry performance.
Liquidity:
Lastly, the liquidity analysis measures the ability of the business to covert the assets into cash in order to pay the short term debt holders of the business. The liquidity analysis of the bank is as follows:
Noncurrent loans to loans:
The noncurrent loans to loans have been studied to identify the liquidity level of the business and on the basis of the below given chart, it has been found that the performance of Citi group is average (Van Gestel & Baesens, 2008). The bank associates the liquidity risk which could affect the overall operations of the business.
Noncore funding dependence:
The noncore funding dependence is a typical measurement of liquidity position of a bank. On the basis of the below given chart, it has been found that the performance of Citi group is highest in the market. The business is enough capable to manage the relationship among the long term earnings assets and the short term funds of the business.
K/A analysis:
K/A ratio explain the consistency among the bank about the equity’s return over a period of time. The current K/A ratio of Citi bank explains that the company has not paid any dividend to its shareholder in the year of 2018 which have affected the market position and shareholder’s interest in the business. the K/A ratio of the bank depicts about worst market condition and shareholder’s value in the bank and recommends that the management of the company must take better decisions in order to improve the K/A level (Turner, 2009).
Rating analysis:
On the basis of the above CAMEL analysis, a rating has been given to the Citibank. The ratings are given to the bank on the scale of 1 to 5. If a bank has 1 or 2 credit rating than it depicts about the normal financial condition of the banks whereas in case of 3, 4 and 5 credit rating, the banks are moderate to extreme degree of supervisory vision.
|
S. No. |
Ratios |
Ratings |
Reasons |
|
1 |
Tier 1 risk-based capital ratio |
4 |
The rating has been given because of the better capital management of the bank. |
|
2 |
Return on assets (ROA) |
3 |
Earnings of the company are average in the industry. |
|
3 |
Net interest margin |
4 |
Net interest of the company is higher in the industry. |
|
4 |
Efficiency ratio |
2.5 |
Efficiency level of the company is below average. |
|
5 |
Net loans and leases to core deposits |
2 |
The company has offered more loans than the total deposit. |
|
6 |
Net noncore funding dependence |
4.5 |
The rating has been given because of the better funding management of the bank |
|
7 |
Noncurrent loans to loans |
2 |
The company has more noncurrent loans than the total loans which affects the solvency position of the bank. |
|
8 |
Loss allowance to noncurrent loans and leases |
2 |
The solvency level of the company is least in the market. |
|
9 |
Earnings assets to total assets |
3 |
Earnings of the company are average. |
|
10 |
Total risk based capital ratio |
3 |
The associated risk level of the company is high. |
|
11 |
Noninterest income to assets |
3.5 |
Income level against the assets is better in the industry. |
|
12 |
Noninterest expense to assets |
3.5 |
Expenses level against the assets is better in the industry. |
|
Average ratings |
3.08 |
|
It explains that the average rating of the Citi group is 3.08. It explains that the loan could be getting by the bank easily in the market and the overall performance of the bank is also maintained at better level by the management and other executives of the business.
Conclusion:
To conclude, the two banks and the industry data considered for the analysis and the credit rating position of Citi group and it has been found that the Citi group is financially sound. The risk associated with the Citi group is lesser than average. the main dimension to measure the rating of the company was earnings and capital adequacy which has been maintained by the company at better level in order to improve the overall performance level of the business. Though, it has been found that the little improvement could also be done by the bank in terms of earnings and liquidity position to improve the overall performance and credit rating of the business. JP Morgan is also performing well in the industry.
References:
Annual report. (2018). J P Morgan Chase and Co.
Golin, J., & Delhaise, P. (2013). The bank credit analysis handbook: a guide for analysts, bankers and investors. John Wiley & Sons.
Home. (2018). Citi Group.
Home. (2018). J P Morgan Chase and Co.
Shen, C. H., Huang, Y. L., & Hasan, I. (2012). Asymmetric benchmarking in bank credit rating. Journal of International Financial Markets, Institutions and Money, 22(1), 171-193.
Turner, A. (2009). The Turner Review: A regulatory response to the global banking crisis (Vol. 7). London: Financial Services Authority.
Van Gestel, T., & Baesens, B. (2008). Credit Risk Management: Basic concepts: Financial risk components, Rating analysis, models, economic and regulatory capital. OUP Oxford.
White, L. J. (2010). Markets: The credit rating agencies. Journal of Economic Perspectives, 24(2), 211-26.
Essay Writing Service Features
Our Experience
No matter how complex your assignment is, we can find the right professional for your specific task. Contact Essay is an essay writing company that hires only the smartest minds to help you with your projects. Our expertise allows us to provide students with high-quality academic writing, editing & proofreading services.
Free Features
Free revision policy
$10Free bibliography & reference
$8Free title page
$8Free formatting
$8How Our Essay Writing Service Works
First, you will need to complete an order form. It's not difficult but, in case there is anything you find not to be clear, you may always call us so that we can guide you through it. On the order form, you will need to include some basic information concerning your order: subject, topic, number of pages, etc. We also encourage our clients to upload any relevant information or sources that will help.
Complete the order form
Once we have all the information and instructions that we need, we select the most suitable writer for your assignment. While everything seems to be clear, the writer, who has complete knowledge of the subject, may need clarification from you. It is at that point that you would receive a call or email from us.
Writer’s assignment
As soon as the writer has finished, it will be delivered both to the website and to your email address so that you will not miss it. If your deadline is close at hand, we will place a call to you to make sure that you receive the paper on time.
Completing the order and download