Banking Sector: CAMEL Rating 2005

Introduction

The Jews in Jerusalem introduced a kind of banking in the form of money lending before the birth of Christ. The word 'bank' was probably derived from the word 'bench' as during ancient time Jews used to do money -lending business sitting on long benches.

First modern banking was introduced in 1668 in Stockholm as 'Svingss Pis Bank' which opened up a new era of banking activities throughout the European Mainland.

In the South Asian region, early banking system was introduced by the Afgan traders popularly known as Kabuliwallas. Muslim businessmen from Kabul, Afganistan came to India and started money lending business in exchange of interest sometime in 1312 A.D. They were known as 'Kabuliawallas'.

Bangladesh Bank

Bangladesh Bank (BB) has been working as the central bank since the country's independence. Its prime jobs include issuing of currency, maintaining foreign exchange reserve and providing transaction facilities of all public monetary matters. BB is also responsible for planning the government's monetary policy and implementing it thereby.

The BB has a governing body comprising of nine members with the Governor as its chief. Apart from the head office in Dhaka, it has nine more branches, of which two in Dhaka and one each in Chittagong, Rajshahi, Khulna, Bogra, Sylhet, Rangpur and Barisal.

Banking Sector and CAMEL Rating:

14 A-class, 11 B-class, 12 C-class, 8 D-class & 3 E-class banks

A total of 48 scheduled commercial banks including 8 (eight) foreign banks have been operating business in Bangladesh through 6,383 Branches. Out of total business 56.5% handled by private commercial banks (PCBs) and rest 43.5% dealt by nationalized commercial banks (NCBs).

Deposit in banking system in 2005 stood at Tk 1,426 billion, registering 15% growth. Total assets increased by 14%, of which 8.2% in NCBs and 21.2% in PCBs. Total loans and advances during the year was Tk. 1,047 billion against total assets of Tk 1,725.5 billion. The cash balance in hand was Tk. 15.5 billion including the deposit with Bangladesh Bank (BB) of Tk. 86.3 billion. The total liability deposit of banking sector in 2005 was Tk. 1,725.5 billion including Tk 92.7 billion capital and reserve.

The total operations of every bank were assessed according to five fixed criteria. These criteria are capital adequacy, asset quality, Management Efficiency, Earning capacity and Liquidity (CAMEL).

Capital Adequacy: For the safety and protection of depositor’s benefit, capital adequacy must be maintained at 9%. It is also the coverage of financial debacles like loan loss, share market loss, foreign currency dealing loss, interest rate fluctuation loss and the protection for off balance sheet affairs hit. During the year 2005 the banking sector of Bangladesh has been able to keep an average 8.7% capital adequacy against the minimum requirement of 9%.

Asset Quality: A total of 60.7% assets of banking sector were used as loans and advances. But the high rate of classification has enhanced vulnerability of assets. In 2005, the classified loan of NCBs was 14.6% against the asset, which was 5.6% for PCBs, 0.9% for foreign banks and 26.6% for specialized banks. A good number of banks have not been able to keep required provision against the classified loan risk from the profit during the year.

Management Efficiency: Management is the key to the development and expansion of a bank. Management efficiency judged on the basis of the ratio of total expenditure to income, operational expenses and total expenses, per head employee income & expenditure and interest rate spread. The average expenditure-income ratio during the year 2005 was 102%, which is a painful scenario for our banking management.

Earning Capacity: Strong earning and high profitability is the good sign of a bank’s present and future strength. Any loss can be compensated from the profit of a bank. Earnings calculated on the basis of return on asset (ROA), return on equity (ROE) and Net interest margin (NIM) ratios.

Liquidity: The banks have to keep 16% SLR against their deposit with central bank, of which 4% average in the form of CRR. The central bank - Bangladesh Bank (BB) keeps CRR in current account and rest of SLR in cash and government securities. Islamic banks have to keep 10% SLR and specialized banks are given exemption of keeping the SLR but they have to keep 4% CRR.

CAMEL Rating: Analyzing the overall operational activities of all commercial and specialized banks; central bank, the regulatory authority of country’s banking sector has ranked 14 ‘A-class’, 11 ‘B-class’, 11 ‘C-class’, 9 ‘D-class’ and 3 ‘E-class’ banks by the end of 2005, which was completed recently.

A-Class banks: The 14 ‘A-class’ banks are Prime Bank, Mutual Trust Bank, Dutch-Bangla Bank, Bank Asia, Exim Bank, Mercantile Bank, Jamuna Bank, Dhaka Bank, BASIC Bank, Standard Bank, Commercial Bank of Ceylon, Citibank N.A, State Bank of India and HSBC.

B-Class banks: The ‘B-class’ banks are Eastern Bank, Premier Bank, The Trust Bank, BRAC Bank, Southeast Bank, NCC Bank, One Bank, Standard Chartered Bank, Woori Bank, Bank Alfalah and National Bank of Pakistan.

C-Class banks: Islami Bank Bangladesh Limited, Pubali Bank, Uttara Bank, National Bank, The City Bank, UCBL, Shahjalal Islami Bank, Al-Arafah Islami Bank, IFIC Bank, AB Bank, First Security Bank and Habib Bank.

D-Class banks: The ‘D-class’ banks are Social Investment Bank, Bangladesh Commerce Bank, Agrani Bank, Janata Bank, Rupali Bank, Sonali Bank, BSRS and RAKUB.

E-Class banks: Bangladesh Krishi Bank, Bangladesh Shilpa Bank and The Oriental Bank. It is revealed by the analysis that the top ranking banks were able to bring best results managing credit and asset efficiently.

>> Source: Weekly Industry, Issue: July 2, 2006, Bangladesh