Bangladesh Shilpa Bank & CAMELS Rating System for Banking Institutions

Bangladesh Shilpa Bank & CAMELS Rating System for Banking Institutions

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  BANGLADESH SHILPA BANK (BSB)
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  Formation 31st December, 1972 Mission:Providing financial support and equity backing to the industrial projects. Basic Functions  Extents term loan facilities  Provides working capital loans  Provides equity support  Issues guarantees  Extends commercial banking services  Purchases and sales shares or securities  Conducts project promotional activities Other Activities  Advisory services  Training
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  Functional Departments 1. Loan Operation 2.Documentation and Machineries Procurement 3. Project Implementation 4. Project Rehabilitation 5. Human Resource Management 6. Law 7. Loan Accounting 8. Central Recovery Transformation  Two Vendors’ Agreement between the Government of the People’s Republic of Bangladesh and the BDBL on 31 December, 2009 to acquire and take-over (BSB & BSRS)  As a Public Limited Company, BDBL formally started journey on January 03, 2010
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  CAMELS RATING FOR BANKINGINSTITUTIONS
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  What is CAMELS Rating? Background  In1979, the Uniform Financial Institutions Rating System (UFIRS) was implemented in U.S. banking institutions.  In 1987, it was adopted by National Credit Union Administration.  In 1995 the Federal Reserve and the OCC replaced CAMEL with CAMELS, adding the "S" which stands for (S) sensitivity to Market Risk. Purpose  Financial  Operational  Managerial
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  CAMELS Asset Quality Management Quality Earnings Liquidity Sensitivity Capital Adequacy COMPONENTS OF CAMELSRATING
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  FACTORS OF COMPONENTRATING 1. Capital Adequacy  Nature and volume of problem assets in relation to total capital and adequacy LLR and other reserves.  Balance sheet structure including off balance sheet items and market and concentration risk. 2. Asset Quality  Volume of problems of all assets  Ability of management to administer all the assets of the banks and to collect the problem loans 3. Management  Quality of the monitoring and support of the activities by the broad and management and their ability to understand and respond to the risk associated with this activities in the present environment and to plan for future  Overall performance of the bank and its risk profile
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  FACTORS OF COMPONENTRATING (CONTINUED) 4. Earning  Sufficient earning to cover potential losses, provide adequate capital and pay a reasonable dividends  Levels of expenses in relation to operations 5. Liquidity  Sources and volume of liquid fund available to meet the short term obligation  Interest rate and maturities of the assets and liabilities 6. Sensitivity to Market Risk  Ability of management to identify, measure and control the market risks given the bank exposer to these risk.  Sensitivity to adverse changes in interest rate, foreign exchange rate, commodity prices, fixed assets
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  RATINGS UNDER EACHCOMPONENT OF CAMELS Capital Adequacy (Ratings)  1: Strong earnings performance  2: Management inability to maintain sufficient capital to support risks  3: Inability to raise new capital to meet regulatory requirements and correct deficiencies  4: Inadequate capital to support risks associated with the business and operations  5: The bank is insolvent Asset Quality (Ratings)  1: Efficient loan portfolio management, close monitoring of problem loans  2: Weaknesses in the management underwriting standards and control procedures  3: Experiencing high level of past due and rescheduled credits and inadequate LLR
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  RATINGS UNDER EACHCOMPONENT OF CAMELS (CONTINUED)  4: Level of problem credits continues to increase and could result in insolvency  5: High level of problem assets credit and non-credit, that impairs the capital or results in a negative capital Management (Ratings)  1: A strong and committed management showing a thorough understanding of the risks associated with the bank’s activities  2: Careful consideration should be given to the financial condition of the bank  3: Poor assessment of risks and planning  4: Poor financial performance may lead to insolvency  5: Consider replacing management
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  RATINGS UNDER EACHCOMPONENT OF CAMELS (CONTINUED) Earnings (Ratings)  1: Strong budgeting, planning & control of income and expenses  2: Capable to meet reserve requirement, capital growth & pay dividends.  3:Insufficient earnings retention may impair capital position  4: Bank is experiencing sever earning problems  5: Major losses lead to insolvency Liquidity ( Ratings)  1: Management having a strong understanding about bank balance sheet  2:Management is unaware about negative trends like as liquidity problems
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  RATINGS UNDER EACHCOMPONENT OF CAMELS (CONTINUED)  3: Management need to know negative trends to solve crisis in daily obligations  4: Require immediate attention and regulatory control  5: Bank require outside financial assistance to meet current liquidity Sensitivity to Market Risk (Ratings)  To determine how much bank is exposed to market risk  Market risk is based on this evaluation factors o Sensitivity of adverse change o Nature of the operations o Changes in the value of fixed asset
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  COMPOSITE RATING  Whatit is?  Considering weights of CAMELS Component Rating: Capital Adequacy 20%, Asset Quality 20%, Management 25%, Earnings 15%, Liquidity 10%, Sensitivity to Market Risk 10% Composite Rating Ranks Terms Description 1 Strong • Basically sound in overall performance • Minor problems and can be handled routinely • Almost resistant to economical and financial risks • No or less supervision needed 2 Satisfactory • Fundamentally sound performance • Can withstand business fluctuations • Limited supervision needed
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  COMPOSITE RATING (CONTINUED) CompositeRating Ranks Terms Description 3 Fair • Vulnerable to adverse business conditions • Deteriorates if lacks in effective correction of weaknesses • More supervision needed 4 Marginal • Immoderate volume of serious financial weaknesses • Unsafe conditions and those are not satisfactorily addressed • Unsafe conditions develop and impair future viability • Close and definite supervision needed 5 Unsatisfactory • High immediate probability of failure • Urgent aid needed • Likely occurrence of liquidation, merger or acquisition
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