Analysis of CAMEL Components and Commercial Bank Performance: Panel Data Analysis

Abstract

The banking industry is an importance for the economic development because this industry circulates funds from the surplus to the deficits in the economy to keep it healthy, grow and sustained. Besides, the primary indicator of the soundness of the financial system is the performance of banking. Therefore, the objective of the study is to analyses the effectof Capital Adequacy, Asset Quality, Management Efficiency, Earning Quality, and Liquidity (CAMEL) towards bank performance. This study employed a static panel data model and utilised data of nine developed countries from the year 2013 until the year 2017. The findings showed that Capital Adequacy and Earning Quality had a positive impact on bank performance.Conversely, Asset Quality, Management Efficiency and Liquidity are a negative impact on bank performance. The reason is, holding the high liquidity asset will reduce income as liquid assets are associated with lower rates of return. It would expect that higher liquidity would negatively affect with bank performance. Therefore, we can conclude that banking should put attention on CAMEL components for evaluating bank performance.