Camels Model Analysis and Financial Performance in Rwanda

Abstract

Bank financial stability distress is due to the paucity liquidity ruling and thus weak related strategies to rank the bank profitability. The purpose of this study is to analyze the level of BRD's Performance, to determine the relationship between CAMELS model analysis and Financial Performance of BRD and finally to analyze the impact of CAMELS model analysis on Financial Performance of BRD. The study used Ordinal Least square analysis to estimate the value of dependent variables. The study was grounded by the agency theory and market timing theory to determine the relevance of bank financial performance in Rwanda. The study used descriptive survey design. The study used random sampling for 150 respondents. The result revealed that BRD is performing well. The return on asset is above 4% and NIM is above 100% which indicate strong performance while return on equity is below 25% which indicate fair performance. The CAMELS model analysis indicates that Capital adequacy (β=.916, p< 0.01), earning quality (β=. -1.026, p<0.01), Liquidity management (β=.705, p<0.01) are positive and significant to financial performance, while management efficient, Asset quality and sensitivity to market risk are not (β=.061, p>0.1), (β=-.104, p<0.05), (β=.204, p>0.1). The result reveal that the market timing theory had a significant impact on CAMELS model on different factors and thus resulting on reducing interest expenses, increasing level of liquidity on investment, fixed assets serving for backing credit lines, reducing level of risk by creating long-term assets provision, underutilization of asset by administration, purchasing fixed assets being used appropriately, less cost benefit of investing in fixed assets, increasing foreign loan portfolio, planning and assess of BRD long term assets, increasing skilled human resources, increasing ICT system. This study recommend that central/national Bank of Rwanda should change the way of ranking banks whereas it should refer to their level of financial performance among in ROE/or ROA as additional to the CAMELS model analysis while categorize them into development to commercial bank. The study prop up on the empirical theory.