Financial analysis of commercial banks in nepal using Camel framework

Abstract

This study evaluates the financial performance of three state-owned commercial banks in Nepal Rastriya Banijya Bank Ltd (RBBL), Agricultural Development Bank Ltd (ADBL), and Nepal Bank Ltd (NBL) through the CAMEL framework, which assesses Capital Adequacy, Asset Quality, Management Efficiency, Earnings, and Liquidity. The research aims to determine whether CAMEL indicators reliably reflect overall financial performance and profitability of commercial banks. Using secondary data from FY 2013/14 to 2022/23, financial statements and ratios were analysed through descriptive research design, ratio analysis, correlation, and regression techniques. Findings indicate that all three banks maintained adequate capital reserves, with improving asset quality and stable liquidity positions. However, indicators such as Earnings per Share (EPS) and Return on Equity (ROE) showed declining trends in recent years, pointing to profitability challenges. The study also finds significant correlations between CAMEL components and profitability metrics (ROE and ROA), validating CAMEL as an effective framework for financial evaluation. Despite covering only three banks, the results offer insights into the broader state of Nepal's public banking sector. This research contributes to the limited body of CAMEL-based evaluations in Nepal, especially concerning state-owned banks, and provides practical recommendations to improve risk management, operational efficiency, and profitability. Future research could benefit from including more banks, incorporating primary data, and employing more advanced analytical models such as the CAMELS framework.

Keywords: Capital Adequacy, Asset Quality, Management Efficiency, Earnings Ability, Liquidity Management