Applying the CAMEL model to assess performance of commercial banks: empirical evidence from Vietnam

The paper aims to investigate the impact of CAMEL components on the financial performance of commercial banks in Vietnam. Three econometric models are built using four CAMEL’s crucial indicators as independent variables (capital adequacy, asset quality, management effectiveness, bank liquidity) and...

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Bibliographic Details
Published in:Banks and bank systems 2020-06, Vol.15 (2), p.177-186
Main Authors: Huu Nguyen, Anh, Thu Nguyen, Hang, Thanh Pham, Huong
Format: Article
Language:English
Subjects:
bank management
bank performance
capital adequacy
commercial bank
Commercial banks
net interest rate
Return on assets
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Summary:The paper aims to investigate the impact of CAMEL components on the financial performance of commercial banks in Vietnam. Three econometric models are built using four CAMEL’s crucial indicators as independent variables (capital adequacy, asset quality, management effectiveness, bank liquidity) and return on assets (ROA), return on equity (ROE), and net interest margin (NIM) as proxies for commercial banks’ financial performance – dependent variables. The research sample includes 31 Vietnamese commercial banks over the 6-year period, from 2013 to 2018. The results show a better fit of the fixed effects model (FEM) in terms of the research methodology compared to the ordinary least squares (OLS) and random effects model (REM). It was found that capital adequacy, asset quality, liquidity and management efficiency affect the performance of Vietnamese commercial banks. Acknowledgement This research is funded by National Economics University (NEU), Hanoi, Vietnam. The authors thank anonymous referees for their contributions and the NEU for funding this research.
ISSN:1816-7403
1991-7074
DOI:10.21511/bbs.15(2).2020.16