A Conceptual CAMELS Evaluation Framework for Banks: An Illustrative Approach

Abstract

The CAMELS rating system is a globally recognized tool used to assess the financial health of banks based on six dimensions: Capital
Adequacy, Asset Quality, Management Efficiency, Earnings, Liquidity, and Sensitivity to Market Risk. This study introduces a
conceptual CAMELS evaluation framework using hypothetical data from three fictional banks to demonstrate the model’s functionality
and educational value. The framework utilizes fabricated financial ratios to assign ratings across each CAMELS component, presented
through visual aids like bar charts and radar plots. Unlike traditional applications, this model is designed for academic and pedagogical
use rather than regulatory enforcement. It simplifies complex concepts for educational settings, aiding in the understanding of how
CAMELS components influence a bank's composite score. The study also addresses limitations and future possibilities, such as
incorporating qualitative factors and real-time data simulations, making it a practical learning tool in banking education programs.