1. CAMELS Modeling and Scoring :Financial Institutional Risk Analysis Risk Training Session#1- Apr/2010 Dept. of Local Investments Department of Quantitative Risk Analytics

3. A for Asset Quality

4. M for Management Capacity

5. E for Earnings Base

6. L for Liquidity Availability

11. As per Basel II Capital Accord , the minimum CAR of a commercial bank should be at least 8.00%

13. Calculate capital growth rate of the bank

14. Calculate and compare CAR % ratios with local regulatory requirements

17. Bad Loan Coverage Ratio should strictly not be less than 1.00 and ideally at least upto 1.5x.

19. Portfolio of securities should be analyzed as per their accounting classification and proportion of total investments

20. Operating income should be separately analyzed from total earnings after tax deductions

22. Well qualified staff at banks always add values to the latter’s brand equity, service quality and market reputation

24. Group Support Ratings are a sign of Sponsor strength and group management quality; hence brand equity and management quality of the group to which the bank may belong, should also be assigned scores

27. ROE - is the Return on Equity and also the opportunity costs of providing funds to different arms of the bank .Higher ROE should be assigned a higher score

29. Fee Income to Net Income ratio should be analyzed separately

31. ROE – Return on Equity should be analyzed in light of WACC – Weighted Average Cost of Capital.

33. All return ratios should be assigned scores PIT –(Point in Time) and credit risk view should not ignore TTC – (Through the Cycle) performances

34. Return ratios and indicators should be assigned scores in light of other balance sheet ratio trends to check linearity and correlation with other risk drivers .

36. Majority of the failed banks in our times, had defaulted on fixed rate commitments due to liquidity mismanagement

38. Banks with higher CAR have higher liquidity resources and vice versa

40. Liquid assets proportion to liquid liabilities ascertains short term funding position

42. Higher availability of liquid assets in relation to total assets should be assigned a higher score

45. Banks have witnessed an increase in loan defaults due to interest rate hikes

46. Overall increase in market risks may reduce CAR – Capital Adequacy Ratio and default probability

48. If Weighted Duration of Assets exceeds Weighted Duration of Liabilities , than the bank has a Duration surplus and vice versa

50. A higher score should be assigned to duration surpluses (WDA>WDL) in a falling↓ interest rate environment

52. Country Risk can be quantified using External Ratings

54. Social issues should be analyzed with its impact on banking industry

56. All factors that contribute to FX price changes and impact translation losses should also be studied

57. Historical Macroeconomic trends should be regressed

59. External Debt to GDP ratio should be on the lower side. The lower the ratio the higher the score to be assigned and vice versa