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Assignment on Camels Rating
Subject: Management | Topics: Assignment

Introduction:
The CAMELS Rating is a US supervisory rating of the banks overall condition used to classify
the nations fewer than 8,000 banks. This rating is based on financial statements of the bank and
on-site examination by regulators like the Fed, the OCC and FDIC. The scale is from 1 to 5 with 1
being strongest and 5 being weakest. These ratings are not released to the public but only to the
top management of the banking company to prevent a bank run on a bank which has a bad
CAMELS rating.
Performance indicators of the banking industry depict a trend similar to that of the state-owned
banks, which is understandable due to their predominant market share. CAMELS ratings indicate
that financial performance of the PCBs and FCBs in general has been better than that of the
industry average. Any bank rated 4 or 5 i.e., Marginal or Unsatisfactory under composite
CAMELS rating is generally identified as a Problem Bank. Activities of the problem banks are
closely monitored by the Central Bank. Bangladesh Bank issues directives from time to time to the
problem banks to bring them in good shape. After the assessment under CAMELS rating, The City
bank Limited is rated 3 or Fair.
The components of a banks condition that are assessed:
(C) Capital adequacy
(A) Asset quality
(M) Management
(E) Earnings
(L) Liquidity
(S) Sensitivity to market risk
Capital Adequacy:
Capital adequacy is a bank regulation, which sets a framework on how banks and depository
institutions must handle their capital. The categorization of assets and capital is highly
standardized so that it can be risk weighted. Internationally, the Basel Committee on Banking
Supervision housed at the Bank for International Settlements influence each countrys banking
capital requirements. In 1988, the Committee decided to introduce a capital measurement system

commonly referred to as the Basel Accord. This framework is now being replaced by a new and
significantly more complex capital adequacy framework commonly known as Basel II. While Basel
II significantly alters the calculation of the risk weights, it leaves alone the calculation of the
capital. The capital ratio is the percentage of a banks capital to its risk-weighted assets. Weights
are defined by risk-sensitivity ratios whose calculation is dictated under the relevant Accord.
To be adequately capitalized under federal bank regulatory agency definitions, a bank holding
company must have a Tier 1 capital ratio of at least 4%, a combined Tier 1 and Tier 2 capital ratio
of at least 8%, and a leverage ratio of at least 4%, and not be subject to a directive, order, or
written agreement to meet and maintain specific capital levels.
Elements of Capital Adequacy:
1.

Regulatory Capital
Tier 1 (Core) Capital
Tier 2 (Supplementary) Capital
Undisclosed Reserves
Revaluation Reserves
General Provisions
Subordinated Term Debt

2.

Common Capital Ratios

Capital Adequacy of The City Bank Ltd (CBL) is given below:


Table 13: Regulatory capital to meet unforeseen Capital
Particulars

Capital:
Amount to meet credit risk
Amount to meet market risk
Amount to meet operational risk

Amount In CroreAmount of regulatory capital to meet unforeseen

5771.22
621.83
680.81

Capital Adequacy of The City Bank Ltd (CBL) is given below:


The Capital Condition of CBL
Table14: The Capital Condition of CBL ( Figure in Crore)
Particulars

2009
Taka

2008

Taka

Tier-1 (Core Capital)


Paid up CapitalStatutory reserve

General Reserve

157.11

136.62

137.74

109.98

Retained earnings as per profit and loss a/c

1.14

1.14

57.52

23.34

353.51

271.08

Tier-II (Supplementary Capital)


General Provision against UC loanGeneral Provision against Off-B/S
items

79.92

42.02

Asset revaluation reserve

10.92

10.92

Exchange equalization account

69.18

69.46

1.69

1.69

0.75

0.18

162.46

124.27

515.97

395.35

4571.45

3591.89

457.15

359.19

58.83

36.16

Revaluation reserve for HTM securities

A. Total Capital
B. Total Risk Weighted Assets
C. Required Capital based on Risk Weighted Assets (10% of B)

D. Surplus (A-C)
The Graphical Presentation is given below:

The Capital adequacy Ratio of CBL:


Table 15: The Capital adequacy Ratio
Required

On Core Capital (Tier-I)On Supplementary


Capital(Tier-II)

On Total Capital

5.00%5.00%

10.0%

Actual
2009

2008

7.73%

7.55%

3.56%

3.46%

11.29%

11.01%

The Graphical Presentation is given below:

Asset quality:
It is related to the left-hand side of the bank balance sheet. Bank managers are concerned with
the quality of their loans since that provides earnings for the bank. Loan quality and asset quality
are two terms with basically the same meaning.
Government bonds and T-bills are considered as good quality loans whereas junk bonds,
corporate credits to low credit score firms etc. are bad quality loans. A bad quality loan has a
higher probability of becoming a non-performing loan with no return. The ratio of non-performing
loans in Japan is expected to be as high as 25% of the overall bank assets.
Bank management components are:
Asset management
Liquidity management
Liability management
Capital adequacy management
Risk management
The Asset Quality of CBL:
Table 16: Classification of loans and advances
Particulars

2009

2008

Taka

Taka

Classification of loans and advances / investments


UnclassifiedStandard including staff loan

Special Mention Accounts (SMA)

ClassifiedSub-standard

Doubtful

40,054,822,803

31,745,159,980

1,314,637,000

505,977,000

41,369,459,803

32,251,136,980

231,832,000

286,730,000

400,577,000

461,788,000

Bad/Loss

Total

1,484,553,000

1,421,290,000

2,116,962,000

2,169,808,000

43,486,421,803

34,420,944,980

Management:
Management in all business areas and organizational activities are the acts of getting people
together to accomplish desired goals and objectives. Management comprises planning,
organizing, staffing, leading or directing, and controlling an organization (a group of one or more
people or entities) or effort for the purpose of accomplishing a goal. Resourcing encompasses the
deployment and manipulation of human resources, financial resources, technological resources,
and natural resources.
Because organizations can be viewed as systems, management can also be defined as human
action, including design, to facilitate the production of useful outcomes from a system. This view
opens the opportunity to manage oneself, a pre-requisite to attempting to manage others.
Management can also refer to the person or people who perform the act(s) of management. In
CBL, the Board of Directors has been conceived as the sources of all power headed by its
Chairman. It is a legislative body of the Bank. Board can delegate its power and authority to
professionals but cannot delegate, relinquish or avoid their responsibilities.
Table 17: Board of Directors
Aziz Al Kaiser

Chairman

Hossain Mehmood

Vice Chairman

Rubel Aziz

Director

Evana Fahmida Mohammad

Director

Hossain Khaled Saifullah

Director

Rajibul Huq Chowdhury

Director

Ahmed Rajeeb Samdani

Director

Tabassum Kaiser

Director

Rafiqul Islam Khan

Director

Meherun Haque

Director

Mobarak Ali

Director

K Mahmood Sattar

Managing Director & CEO

So we can see that the top management of CBL is full of so much experience person in banking
sector and they can eligible enough to fulfill the top-level management duties.
In CBL, The Board delegates its functional responsibilities of the professional management team
headed by managing Director. He is an ex-officio of the Board of Directors and has to take the full

load of carrying out of the guidelines, rules and regulations and Directors given by the Board of
Directors time to time and provide all vital information to this Board for their knowledge and
effective decision-making.
Table 18: Number of Employees
Year

No of Employees

2005

1,829

2006

1,989

2007

1,991

2008

2,134

2009

2,424

Table 19: Operating profit per employee


Particulars

2005

2006

2007

2008

2009

Operating profit per


employee

0.68

0.75

0.63

0.82

0.93

The Graphical Presentation is given below:

Table 20: Total Operating Income per employee


Particulars
TotalOperating Income per
employee

2005

2006

2007

2008

2009

1.15

1.33

1.29

1.58

1.80

The Graphical Presentation is given below:

Income or Earnings:
Income is the consumption and savings opportunity gained by an entity within a specified time
frame, which is generally expressed in monetary terms. However, for households and individuals,
income is the sum of all the wages, salaries, profits, interests payments, rents and other forms of
earnings received in a given period of time. For firms, income generally refers to net-profit, what
remains of revenue after expenses have been subtracted. In the field of public economics, it may
refer to the accumulation of both monetary and non-monetary consumption ability, the former
being used as a proxy for total income.
Economic definitions:
In economics, factor income is the flow of revenue accruing to a person or nation from labor
services and from ownership of land and capital. In consumer theory income is another name for
the budget constraint, an amount Y to be spent on different goods x and y in
quantities x and y at prices Px and Py.
This equation implies two things. First buying one more unit of good x implies buying less units of
good y. So, is the relative price of a unit of x as to the number of units given up in y. Second, if the
price of x falls for a fixed Y, then its relative price falls. The usual hypothesis is that the quantity
demanded of x would increase at the lower price, the law of demand. The generalization to more
than two goods consists of modeling y as a composite good.
The theoretical generalization to more than one period is a multi-period wealth and income
constraint. For example the same person can gain more productive skills or acquire more
productive income-earning assets to earn a higher income. In the multi-period case, something
might also happen to the economy beyond the control of the individual to reduce (or increase) the
flow of income. Changing measured income and its relation to consumption over time might be
modeled accordingly, such as in the permanent income hypothesis.
Various income of CBL in 2009 is shown below (Amounts in million)

Besides, some other income of CBL is shown below:


Table 21: Income of CBL
Particulars

2009

2008

Million

Million

Return on Assets (ROA)

Earnings per Share (EPS)


Net Assets Value Per Share
Market liquidity:
In business, economics or investment, market liquidity is an assets ability to be sold without
causing a significant movement in the price and with minimum loss of value. Money, or cash on
hand, is the most liquid asset. An act of exchange of a less liquid asset with a more liquid asset is
called liquidation. Liquidity also refers both to a businesss ability to meet its payment obligations,
in terms of possessing sufficient liquid assets, and to such assets themselves.
In Banking:
In banking, liquidity is the ability to meet obligations when they come due without incurring
unacceptable losses. Managing liquidity is a daily process requiring bankers to monitor and
project cash flows to ensure adequate liquidity is maintained. Maintaining a balance between
short-term assets and short-term liabilities is critical. For an individual bank, clients deposits are
its primary liabilities, whereas reserves and loans are its primary assets . The investment portfolio
represents a smaller portion of assets, and serves as the primary source of liquidity. Investment
securities can be liquidated to satisfy deposit withdrawals and increased loan demand. Banks
have several additional options for generating liquidity, such as selling loans, borrowing from other
banks, borrowing from a central bank, such as the US Federal Reserve bank, and raising
additional capital. In a worst case scenario, depositors may demand their funds when the bank is
unable to generate adequate cash without incurring substantial financial losses. In severe cases,

this may result in a bank run. Most banks are subject to legally-mandated requirements intended
to help banks avoid a liquidity crisis.
Cash Reserve Requirement (CRR) and Statutory Liquidity Ratio (SLR) of CBL:
Cash Reserve Requirement and Statutory Liquidity Ratio have been calculated and maintained in
accordance with section 33 of Bank Companies Act, 1991 and as per BRPD circular no. 11 and
12, dated August 25, 2005 and DOS circular no. 6 dated October 05, 2005.
The Cash Reserve Requirement on the Banks time and demand liabilities at the rate of 5% has
been calculated and maintained with Bangladesh Bank in current account and 18% Statutory
Liquidity Ratio, including CRR, on the same liabilities has also been maintained in the form of
treasury bills, bonds & debentures including FC balance with Bangladesh Bank. Both the reserve
maintained by CBL is in excess of the statutory requirements, as shown below:
Liquidity Condition of CBL:
a.

Cash Reserve Requirement

Table 22: Cash Reserve Requirement


Particulars

2009 (Taka)

2008 (Taka)

2009 (Taka)

2008 (Taka)

Required Reserve (5% of average time and demand liabilities)

b.

Statutory Liquidity Ratio

Table 23: Statutory Liquidity Ratio


Particulars
Required Reserve (18% of average time and demand liabilities)

Actual Average maintained (including CRR)


Liquidity Statement of CBL:
Liquidity Statement
As at 31st December 2009 (Figure in BDT
Table 24: Liquidity Statement
Particulars
ASSETS

Cash in hand
Balance with BB and agent
Balance with other bank
Money at call and short
Investments

Total

Loans and Advances


Fixed Assets
Other Assets
Non-banking assets
Sensitivity to market risk:
Market risk is defined as a current or prospective threat to the Banks earnings and capital due to
movements in market prices, i.e. prices of securities, commodities, interest rates & foreign
exchange rates.
CBL addresses Market Risk through standardized approach as per direction of Bangladesh bank.
It is the risk that the value of on and off-balance sheet positions will be adversely affected
movements in market rates or prices such as interest rates, foreign exchange rates, equity prices,
credit spreads and commodity prices resulting in a loss to earnings and capital.
CBL calculates market risk for three components, namely interest rate risk, equity position risk
and foreign exchange risk. CBL does not deal with commodity. Under standardized approach both
specific and general market risk are calculated for interest rate related instruments and equity
holding. Presently CBL does not deal with SWAP or derivative instruments.
Interest Rate Risk:
Interest rate risk arises when there is a mismatch between positions, which are subject to interest
rate adjustment within a specific period. CBL has developed VAR and Stress Testing to assess
and manage the interest rate risk and its adverse impact on balance sheet as well as on
profitability.
Foreign Rate Risk:
It is the current or prospective risk to earnings and capital arising from adverse movements in
currency exchange rates. It refers to the impact of adverse movement in currency exchange rates
on the value of open foreign currency position. To manage the risk, CBL has taken the following
initiatives:
CBL has formed Asset Liability Committee (ALCO)
Separated Back office and Front office
Hire expect dealing officers
Measures risk to NII regularly
Measures risk to economic of value
Earning at Risk and
Value at Risk (VAR)

Equity Price Risk: It is risk to earnings or capital that results from adverse changes in the
value of equity related portfolios of a financial institution. CBL has deployed a team to manage
equity position risk. Beside these, CBL use VAR and Stress Test for measuring the impact of
market movement of stock price as well as capital adequacy of CBL.
Table 25: The Capital Requirements for Market Risk
The Capital Requirements for

Market Risk

Interest rate risk


Equity position risk
Foreign exchange risk
BDT in million

The Graphical Presentation is given below: