CAMELS is a model for performance evaluation of Commercial Banks in India. C stands for Capital adequacy, A stands for Asset Quality, M stands for Management, E stands for Earning, L stands for Liquidity and S stands for sensitivity. Researcher have worked a lot on CAMEL model parameter but very few have touched the last component i.e. Sensitivity. Please guide me as to how I can approach this technical aspect for my study. My study is covering 34 Indian commercial banks over a period of 10 years.
the data may be difficult to obtain. There are multliple versions of sensitivity. There is sensitivity to profit/loss against the risk-free rate; against the single-A credit spread (or whatever the bank uses as a benchmark) and there is sensitivity against the stock market index. Have you looked at US studies? In the US, sensitivity to the risk-free rate is generally available in the 10Q and 10K filings, or in the CCAR files from the FRB.
Some of the larger indian banks contribute to the Joint Database of the BIS and World Bank. That might be a place to start.
The sensitivity component is totally focused on risk. Therefore, look at credit risk by examining loan charge-offs and reserves for loan losses. Also, look at portfolio risk by examining duration risk--how long portfolio is. A number of other risk components can be examined
For the case of the Central Bank, using the CAMELS ratio under sensitivity, you can use this for both internal and external reports to be able to measure the market sensitivity. These are the core ratios.
Forex Exposure / Core Capital
Forex Loans / Forex Deposits
Forex Assets / Forex Liabilities
However, you can use Dupont ratio of interest sensitivity ratio by using financial reports published by the financial institutions i.e look at financial assets and financial liabilities of the banks (check on the notes to the financial statements). From there, identify interest sensitive gap (ISG). Look for the difference between interest sensitive assets (ISA) and interest sensitive liabilities (ISA). Then also you can compute Relative gap/Cummulative Gap (ISG/Bank assets*%)
Thanks to all for your valuable feedback and precious time spent for my query.
For the case of secondary data, use the financial statements of Commercial banks for the case of dupont ratios. Then for the central banks, you can still use the Camels ratio as long as you can obtain that information from the financial statements especially forex transactions.
The use of sensitivity analysis for measuring changes in the values of each component of the portifolio of every bank within the
I find sensitivity as an indicator which is responsible for the adaptiveness of banks. Risk, customer knowledge management and innovation management are amongst the options of secondary data that could be analyzed. Look at the attachment - it is a research on bank innovative products (market research).
Article Innovative Business Bank products
How do I find the sensitivity of a bank loan let's say the bank is giving me a loan at 9.75% interest and I want to see how sensitive is the bank loan increases or decreases by 20%