EVALUATING THE FINANCIAL PERFORMANCE OF SELECTED PRIVATE COMMERCIAL BANKS OF ETHIOPIA USING CAMEL APPROACH

Abstract

Even though there are researches undertaken to explain the financial performance of banks in Ethiopia in general by applying CAMEL model, there are only few studies that were undertaken on only private commercial banks of Ethiopia. Among all these researches, only few studies were exhaustive in applying most of CAMEL explanatory variables. In addition, most of the studies were conducted at different periods of time. Thus, this study evaluated the financial performance of 11 selected private commercial banks of Ethiopia applying CAMEL model from 2013 to 2020. Accordingly the overall objective of the study was to measure the financial performance of private commercial banks using CAMEL ratios and to rank them based on their result. With regard to the CAMEL explanatory variables the research was limited to 21 variables. The research methodology was limited to quantitative approach with descriptive statics for CAMEL ratios. The results show that on group composite capital adequacy Wegagen bank was on top when compared to other banks under the study period. On asset quality perspective Hibret bank outperformed other banks. With regard to composite management efficiency Awash bank stood on top. Lion proved to be the better bank in utilizing its assets to generate sustainable and quality return when compared with sampled banks in the study period. Zemen was on top by being more liquid in the study period. When looking to the overall performance of banks Addis was on top followed by Zemen and Bunna. Based on the findings of the study the researcher recommend banks with very low score on different CAMEL ratios especially on group composite shall evaluate their own performance over a given period frequently.