CAMELS Rating System

What is the ‘CAMELS Rating System’

The CAMELS rating system is a recognized international rating system that bank supervisory authorities use in order to rate financial institutions according to six factors represented by the acronym “CAMELS.” Supervisory authorities assign each bank a score on a scale, and a rating of one is considered the best and the rating of five is considered the worst for each factor.

Explaining ‘CAMELS Rating System’

Banks that are given an average score of less than two are considered to be high-quality institutions. Banks with scores greater than three are considered to be less-than-satisfactory institutions.

Capital Adequacy

Examiners assess institutions’ capital adequacy through capital trend analysis. Examiners also check if institutions comply with regulations pertaining to risk-based net worth requirement. To get a high capital adequacy rating, institutions must also comply with interest and dividend rules and practices. Other factors involved in rating and assessing an institution’s capital adequacy are its growth plans, economic environment, ability to control risk, and loan and investment concentrations.

Asset Quality

Asset quality covers an institutional loan’s quality which reflects the earnings of the institution. Assessing asset quality involves rating investment risk factors that the company may face and comparing them to the company’s capital earnings. This shows the stability of the company when faced with particular risks. Examiners also check how companies are affected by fair market value of investments when mirrored with the company’s book value of investments. Lastly, asset quality is reflected by the efficiency of an institution’s investment policies and practices.


Management assessment determines whether an institution is able to properly react to financial stress. This component rating is reflected by the management’s capability to point out, measure, look after, and control risks of the institution’s daily activities. It covers the management’s ability to ensure the safe operation of the institution as they comply with the necessary and applicable internal and external regulations.


An institution’s ability to create appropriate returns to be able to expand, retain competitiveness, and add capital is a key factor in rating its continued viability. Examiners determine this by assessing the company’s growth, stability, valuation allowances, net interest margin, net worth level and the quality of the company’s existing assets.


To assess a company’s liquidity, examiners look at interest rate risk sensitivity, availability of assets which can easily be converted to cash, dependence on short-term volatile financial resources and ALM technical competence.


Sensitivity covers how particular risk exposures can affect institutions. Examiners assess an institution’s sensitivity to market risk by monitoring the management of credit concentrations. In this way, examiners are able to see how lending to specific industries affect an institution. These loans include agricultural lending, medical lending, credit card lending, and energy sector lending. Exposure to foreign exchange, commodities, equities and derivatives are also included in rating the sensitivity of a company to market risk.

Camels Rating System FAQ

What is camel rating in banking?

The CAMELS rating system uses six categories to assesses a bank’s strength. CAMELS is an acronym for capital adequacy, assets, management capability, earnings, liquidity, sensitivity. The rating system runs from one through five, with one as the best rating and five as the worst rating.

How is camel rating calculated?

Calculate the ratios by dividing the capital quantity by the bank’s total assets or, depending on the ratio, by assets weighted for risk. Aug 23, 2018

How Camels rating indicates the financial soundness of a commercial bank?

Operational Condition: Analysis of the bank’s liquidity position and risk management ensuring conducive operational condition. Managerial Condition: Indicates the efficiency of the management in handling risks, managing sources of funds, liquidity position, and earnings potential of the institution. Mar 14, 2019

Is there a rating system for banks?

Safety and Soundness Overview The rating system for banks since 1979 have been the interagency Uniform Financial Institutions Ratings System (UFIRS), which the Federal Reserve and other banking agencies recommended. This rating system evaluates six components and is referred to industry-wide by the acronym CAMELS. Sep 6, 2013

What is a good camel rating?

CAMELS is recognized internationally and bank supervisory authorities use it to rate financial institutions according to six factors represented by its acronym. … one represents the best rating, and five represents the worst rating for each factor. May 27, 2020

Further Reading

  • Camels rating system for banking industry in pakistan: does CAMELS system provide similar rating as PACRA system in assessing the performance of banks in … – [PDF]
  • Camels rating system and forecasting the financial failure in the turkish commercial banking sector – [PDF]