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Kathmandu University School of Management

Banking and Insurance

Summary on
A Comparative Performance Evaluation of the Nigerian Banking Sector in the Post 2005
Consolidation: Through the CAMEL Rating System

Submitted to:
Mr. Pawan Jha

Submitted by:
Jyotsna Shrestha (14329)

The research paper analyzes and compares the performance of the Nigerian banks in the past
2005 consolidation through the Camel rating system. The central bank of Nigeria have taken
many strong measures to ensure the formation of a strong financial system in terms of capital
adequacy, asset quality, provision for non-performing assets, prudential norms, disclosure
requirements, acceleration of pace and technology, complying with accounting standards and
transparency in financial statements and using same financial calendar. This step by the central
bank has made the Nigerian banking system a hot topic for researchers. There are many studies
carried out in this sector, however, the researchers of this particular paper have recognized a gap
in this particular field of research on the banks of Nigeria. They identified that no one had used
CAMEL rating system to compare and analyze the efficiency soundness and safeness of the
Nigerian banking sector. Thus, this research utilizes the CAMEL rating system to determine
banks that outperform in various parameters and ultimately find the bank that is the most
efficient among other banks in Nigeria.
The CAMEL rating system measures five parameters namely capital adequacy, asset quality,
management quality, earnings ability and liquidity position. Each parameter is evaluated by
calculating various ratios. The research, in its methodology section defines ratios that would help
to measure the parameters. These ratios are calculated based on the annual reports of the
individual bank. Comparison of all the 15 banks of Nigeria is done looking at the ratios. The
bank with the best ratio is ranked as 1 meaning that among others this bank is the very best in the
particular parameter. At last the average of all the parameters ranking is used for the best bank in
Nigeria.
The following table depicts the ratios used to measure each of the 5 parameters under CAMEL
Parameters

Ratios

Capital adequacy (C )

-Shareholders fund/Total asset

Asset quality (A)

-Non-performing loan and advances/ Total advances


-Total loans and advance/ Total assets

Management quality (M)

-Total loans and advances/Total deposits


-Interest expenses/Total deposits
-Operating expenses / Total assets

Earnings ability (E)

-Net income/ Total assets or ROA


-Interest income/ Total assets

Liquidity (L)

-Total liquid assets / Total assets


-Liquid assets / Customers deposits

Using the above ratios, all the banks have been ranked and the following table depicts the best
and the worst banks for the 5 parameters.
Parameters
Capital adequacy (C )
Asset quality (A)

Management quality (M)

Best bank (rank 1)


FCMB Bank Plc (23.64%)
Zenith Bank (3.69%) (nonperforming loans and
advances/ total loans and advances)
ECO Bank Nigeria Plc (42.59%) (ROA)

Worst bank (rank 15)


WEMA Bank Plc (4.31%)
WEMA Bank Plc (112.63%) (nonperforming
loans and advances/ total loans and
advances)
Union Bank (26.24%) (ROA)

STANBIC IBTC Bank (90.08%) (total loans and


advances/ total deposits)

Unity Bank Plc (35.99%) (total loans and


advances/ total deposits)

First bank of Nigeria Plc (3.12%) (interest expense/


total deposit)

STANBIC IBTC Bank (8.91%) (interest


expense/ total deposit)

FCMB (3.92%) (operating expense/ total assets)

Unity bank (9.14%) (operating expense/


total assets)
WEMA Bank Plc (-8.47%) (avg value of net
profit/ total assets)

Earnings ability (E)

GTB Plc (2.88%) (avg value of net profit/ total assets)

Liquidity (L)

Sterling Bank Plc (10.07%) (avg of interest net


income/ total asset)
Zenith Bank Plc (35.48%) (liquid assets/ total assets)

FCMB Plc (6.10%) (avg of interest net


income/ total asset)
FCMB Bank Plc (9.71%) (liquid assets/
total assets)

Zenith Bank Plc (52.92%) (avg of liquid assets to


customers deposit)

Sterling Bank Plc (14.71%) (avg of liquid


assets to customers deposit)

Lastly the following table shows the overall ranking of the Nigerian banks on the CAMEL
parameter:
Banks of Nigeria
GTB
DIAMOND
ZENITH
FIRST BANK
FIDELITY
STANBIC IBTC
ACCESS
FCMB
SKY Bank
ECO Bank
UBA
STERLING
UNITY BANK
UNION BANK
WEMA BANK

Rank
1
2
3
4
5.5
5.5
7
8
9
10
11
12
13
14.5
14.5

Conclusion
This research provides a clear picture of the Nigerian banks in terms of the parameters that the
CAMEL rating system depicts. CAMEL rating system is a popular method that classifies a
banks overall condition and helps gain a deep understanding of the performance of financial
institutions. With the help of CAMEL system, this research paper has identified and ranked each
of the 15 banks of Nigeria and given a detailed analysis of each of the banks in terms of various
ratios. On the basis of overall performance, GTB is the best bank in Nigeria followed by
DIAMOND and ZENITH Bank. The bank that ranked the very last was WEMA Bank. From the
analysis it can be viewed that only two banks GTB or Guarantee Bank Plc and Diamond Bank
Plc managed to secure the rank among the best 10 banks in all the parameters of CAMEL. This
shows that the banking sectors of Nigeria have a long way to go in terms of strengthening all the
dimensions that a bank should outperform. This research has been quite successful in its
objective of analyzing and comparing the financial performance of the banks and moreover
helping customers understand their banks so that they can easily differentiate between
performing and non performing banks and transact with only high performing trustworthy banks.

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