CAMELS Rating: CAMELS is a recognized international rating system that bank supervisory authorities use in order to rate financial institutions according to six factors represented by its acronym.
Supervisory
authorities assign each bank a score on a scale. A rating of one is considered
the best and a rating of five is considered the worst for each factor.
The
CAMELS rating system assesses the strength of a bank through six categories.
The six components of CAMELS are:
• C—Capital adequacy
• A—Asset quality
• M—Management
• E—Earnings
• L—Liquidity
• S—Sensitivity to market
risk
The CAMELS rating system is
no doubt an essential tool for the identification of the financial strength and
weakness of a bank by evaluation of the overall financial situation of the bank
for any corrective actions to be taken.