Abstract
The paper aims to investigate the impact of CAMEL components on the financial performance of commercial banks in Vietnam. Three econometric models are built using four CAMEL’s crucial indicators as independent variables (capital adequacy, asset quality, management effectiveness, bank liquidity) and return on assets (ROA), return on equity (ROE), and net interest margin (NIM) as proxies for commercial banks’ financial performance – dependent variables. The research sample includes 31 Vietnamese commercial banks over the 6-year period, from 2013 to 2018. The results show a better fit of the fixed effects model (FEM) in terms of the research methodology compared to the ordinary least squares (OLS) and random effects model (REM). It was found that capital adequacy, asset quality, liquidity and management efficiency affect the performance of Vietnamese commercial banks. Acknowledgement This research is funded by National Economics University (NEU), Hanoi, Vietnam. The authors thank anonymous referees for their contributions and the NEU for funding this research.
Highlights
A banking system is a component of the financial system, which plays an important role in the economic development of countries of the world (Tumin & Said, 2011). McKinnon (1973), Misra and Aspal (2013) point out the role of the financial system for economic growth and development
The results show a better fit of the fixed effects model (FEM) in terms of the research methodology compared to the ordinary least squares (OLS) and random effects model (REM)
The CAMEL model parameters include Capital adequacy, Asset quality, Management efficiency and Liquidity that are taken as independent variables, while financial performance (ROA, return on equity (ROE), and net interest margin (NIM)) is considered as a dependent variable
Summary
A banking system is a component of the financial system, which plays an important role in the economic development of countries of the world (Tumin & Said, 2011). McKinnon (1973), Misra and Aspal (2013) point out the role of the financial system for economic growth and development. McKinnon (1973), Misra and Aspal (2013) point out the role of the financial system for economic growth and development. A banking system is a component of the financial system, which plays an important role in the economic development of countries of the world (Tumin & Said, 2011). It is important to assess the overall effectiveness of banks using the prescribed banking supervision framework, and the CAMEL rating system is an effective monitoring measure.
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