What is CAMEL?
A number of methodologies are used to do financial and credit analysis and CAMEL is one of the widely used methodologies. In the CAMEL system, five broad factors are used including Capital (C), Asset quality (A), Management (M), Earnings (E), and Liquidity (L). After collecting several years of financial data, analysts can better evaluate the financial performance and condition of a bank. Bank examiners assign each letter in the system a score from 1 to 5 in terms of financial health, where 1 is the best and 5 is the worst.
Why is CAMEL important?
CAMEL system provides a standardised methodology to conduct detailed credit analysis of the Banks. The model can be used in different jurisdictions which also provide the luxury of comparing banking performing operating in different jurisdictions.