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An empirical investigation of banking sector performance of Pakistan and Sri Lanka by using CAMELS ratio of framework

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  • Hibba Saeed
  • Ahsin Shahid
  • S. Muhammad Ali Tirmizi

Abstract

This study has been initiated to evaluate the impact of CAMELS Ratio on performance of banking sector in terms of Efficiency. In this study financial ratios, including Capital Adequacy (CA), Asset Quality (AQ), Management Soundness (MS), Earnings, Liquidity (LR) and Sensitivity to market risk (SR) collectively termed as CAMELS ratio, have been applied to evaluate the performance of Pakistani and Sri Lankan banking sector in terms of Efficiency and empirical significance in terms of Panel regression model. Therefore, pooled data of all the banks operating in Pakistan and Sri Lanka from 2008 to 2016 have been employed. The empirical results of GLS, time-fixed and random-fixed effect model estimation after the application of Hausman Test revealed that the random-effects model has been preferred over the fixed-effect model. The empirical analyses also indicate that all of the variables turned significant in their association with the efficiency of the banking sectors of both countries, these are CA, AQ, LR, MS, Return on Equity (ROE) and Return on Assets (ROA) (Earnings), but SR is insignificant but positively associated with the efficiency. However, these results also confirm from the previous studies.

Suggested Citation

  • Hibba Saeed & Ahsin Shahid & S. Muhammad Ali Tirmizi, 2020. "An empirical investigation of banking sector performance of Pakistan and Sri Lanka by using CAMELS ratio of framework," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 10(3), pages 247-268, July.
    • Handle: RePEc:taf:jsustf:v:10:y:2020:i:3:p:247-268
    DOI: 10.1080/20430795.2019.1673140
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    Cited by:

    1. Muhammad Rabiu Danlami & Muhamad Abduh & Lutfi Abdul Razak, 2022. "CAMELS, risk-sharing financing, institutional quality and stability of Islamic banks: evidence from 6 OIC countries," Journal of Islamic Accounting and Business Research, Emerald Group Publishing Limited, vol. 13(8), pages 1155-1175, June.

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