Evaluation of the Financial Performance of Dashen Bank using CAMEL Approach Askalemariam Adugna A Thesis submitted to The Department

Abstract

Today it becomes extremely essential for Commercial banks to evaluate their performance because their survival in the dynamic economic environment will be dependent upon their good performance. There is a little study in the area of bank performance evaluation in Ethiopia particularly using Capital Adequacy, Assets Quality, Management Efficiency, Earning Quality and Liquidity (CAMEL) model. All the researchers used CAMEL Model as ratio analysis by comparing one bank to another bank to find out the performance of the banks. And among all these researchers, no one except Assefa has used all components of CAMEL model to evaluate the financial performance of commercial banks. On the other hand the time series data taken by Assefa and Getahun for comparison is limited for five years and four years respectively. Thus, this study is to conduct with the intention of filling these gaps by extending the issue to the specific context of Dashen Bank through a descriptive way of research design. The study used both primary and secondary data. Secondary data were obtained for 10 years (2006 ‒ 2015) from the records of Dashen Bank, and this was used to calculate different types of ratios related to CAMEL model. In addition to this, primary data were collected through unstructured interview with two Bank’s officials who are working in the planning and development section, and investment and accounts section regarding the outcomes of the computed ratios in a bid to triangulate the findings. This study used a descriptive financial ratio analysis to measure, describe and analyse the performance of Dashen Bank during the period 2006-2015. Statistical tools like average and standard deviation were also calculated. It is highlighted that the position of Dashen Bank is sound and satisfactory as far as their capital adequacy, asset quality, management efficiency earning quality and liquidity is concerned. According to the results, Dashen Bank is committed above a minimum (12%) capital adequacy ratio, recommended by experts in the banking sector. Therefore, Dashen Bank should maintain or increase their capital adequacy ratio (CAR) to enhance the safety of its banking system, and the safety of its depositors. The debt to equity ratio of Dashen Bank was not good to beat its obligations; this is very risky for the overall sustainability of the bank. Therefore, the bank’s management has to work to maximize the amount of owners’ equity, and has to search for other sources so that the performance of the bank can be improved. The researcher suggested that in the further research one may need to consider this examination as a source of perspective to extend the scope and enhance the findings of the exploration.