Banking Supervision and Evaluation with Camels. A Case Study in Kosovo

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Since the political and economic changes that happened in Kosovo in 2000 has begun the process of creating a financial system and especially of a banking system based on market principles. The focus was mostly the market liberalization with the aim to approach the banks and foreign banking groups which was expected to bring experience and capital in the banking system. Now, after one and a half decade, the banking system in Kosovo has taken his form and has faced many important problems and challenges. The last bank financial crisis which began in USA as an mortgage crisis in 2007 has touched the banking system in Kosovo. This crisis, which came to Europe in 2008 has also affected Kosovo that year and the consequences continue even today. It should be noted that the international crisis did not bring problems in the banking market in Kosovo. In fact it just revealed the problems that existed, but not appeared yet. The rapid growth of non-performing loans at double-digit levels, up to 25%, did not come from crisis as much as from poor management of the lending process, in the years before the crisis. The knowing state of the banks and the impact to prompt them towards less risky methods and practices remains a challenge of a supervisor. In this paper we will focus precisely with this issue. Analyzing the rating system CAMELS we will illustrate its use for one bank of banking system. The goal is to mention the practical problems that this rating system reaches to identify in order to provide recommendations that would deem valid for more effective supervision.