Anatomic assessment of CAMEL in Nigerian banking

Abstract

This study aims to compare the anatomy of Nigerian bank financial condition with the CAMEL (capital adequacy, assets quality, management quality, earnings, liquidity) tool, which bank regulators use to gauge bank financial condition as part of off-site surveillance. An earlier paper used factor analysis to cast bank anatomy in terms of market presence, macro-economic condition, deposit mobilisation, prudence, earnings quality, market power and capital confidence (Njoku and Inanga, 2008b). Factor selection and weighting under the CAMEL model is by subjective judgement in contrast with the empirical approach of the anatomic model. Therefore, profiling one model against the other should deliver insight. Accordingly, this study deploys discriminant analysis to indicate significant descriptors at the univariate level. By profiling the anatomic descriptors against CAMELS, the study reports additional viable variables outside the CAMELS framework, thereby contributing to the elusive search for factors that influence bank financial condition.