Ppt template Back to Basics fnb
Date 23.10.2021 Size 0.75 Mb. #57549
CAMELS Rating System 10-16-18-converted The Way Regulators Rate Banks What is the CAMELS Rating System? CAMELS is a recognized international rating system that bank supervisory authorities use in order to rate financial institutions accord to six factors represented by its acronym Supervisory authorities assign each bank a score on a scale. A rating of “1” is considered the best – a rating of “5” is considered worst for each factor Breaking Down the CAMELS Rating System Banks that are giving an average score of “1” or “2” are considered to be high quality institutions Banks with a “3” are considered to be Watch Banks and will likely incur greater regulatory scrutiny The acronym CAMELS stand for the following factors that examiners use to rate bank institutions: Capital Adequacy Capital Adequacy is assessed through trend analysis Risk-based net worth requirements A high rating – the institution must comply with interest and dividend rules and practices Tiers of Capital Other Factors Capital Adequacy – Other Factors Bank’s growth plans Economic Environment Risk Management Practices Loan and Investment Concentrations Quality of Capital Asset Quality Asset quality covers primarily the institution’s loan portfolio quality Loan quality directly impacts the quality of the institution’s earnings Loan Review – Loan Grading – Policies & Procedures Classified Loans Non-accrual Loan Fair Market Value of Investments Management Strategic Planning and Business Planning Ability to react to economic conditions and financial stress Management’s abilities to identity, measure, mitigate and control risk of the bank’s daily activities Safety and Soundness Regulatory Compliance Earnings How does the institution make money? Measure the institution’s ability to generate appropriate risk-adjusted returns Provides the ability to investment for the future and remain competitive Primary source of capital to support asset growth Net Interest margin, valuation and reserve allowances, quality of growth, fee-based services, expense management and the overall stability of the company Liquidity Interest Rate Sensitivity Availability of Assets that can be converted to cash Dependence upon short-term, potentially volatile financial resources Asset Liability Management competence Quality Customer Deposit Base Sensitivity Measures how particular risk exposures can affect financial institutions Market Risk Transactional Risk Info Security Reputation Credit Concentrations Questions? Share with your friends:
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