Camel Analysis in Prediction of Financial Effectiveness of Nepalese Development Banks

Abstract

The modern era has proven the critical importance of banking organizations. It contributes significantly to the entire country's economy. The purpose of this investigation was to adopt CAMEL methodologies to forecast the financial performance of Nepalese Development Banks. The objective of the research was to evaluate the financial performance of four development banks, namely Muktinath Bikas Bank Limited, Joyti Bikas Bank Limited, Kamana Sewa Bikas Bank Limited and Garima Bikas Bank Limited, from 2018/019 to 2022/023. The CAMEL framework, consisting of Capital adequacy, Asset quality, Management capability, Earnings efficiency, and Liquidity position, offered as a methodical design for evaluating the comprehensive performance of financial institutions. This paper employed CAMEL frameworks which evaluate the development banks in Nepal, providing a widespread evaluation of the advantages and limitations of the banking system. In order to conduct a CAMEL analysis of development banks in Nepal, this investigation followed a quantitative, descriptive, and analytical research design. The study utilized secondary data gathered from public financial reports, annual statements, and regulatory submissions of development banks in Nepal. A representative sample of Development Banks in Nepal is selected using a random sampling strategy. The financial sustainability of Development Banks in Nepal was evaluated favorably by the CAMEL analysis. In numerous aspects of the framework, the majority of Nepalese development banks have demonstrated satisfactory performance. The results of this study can provide valuable support to policymakers, regulators, and industry experts in the areas of making informed decisions, reducing potential risks, and enhancing the overall financial stability of the banking system, with a particular emphasis on the Development Banks of Nepal.