Sử dụng mô hình camels để đánh giá an toàn của các ngân hàng thương mại Việt Nam

Nội dung text: Sử dụng mô hình camels để đánh giá an toàn của các ngân hàng thương mại Việt Nam

1. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2019 ICYREB 2019 USING CAMELS MODEL FOR EVALUATING STABILITY OF COMMERCIAL BANKS IN VIETNAM SỬ DỤNG MÔ HÌNH CAMELS ĐỂ ĐÁNH GIÁ AN TOÀN CỦA CÁC NGÂN HÀNG THƯƠNG MẠI VIỆT NAM Nguyen Quoc Viet Trade Union University quocviet4189@gmail.com ABSTRACT Commercial banks in Vietnam have experienced huge transformation in the last twenty years and are considered as an integral part of the economy. Therefore, monitoring, supervision and continuous performance evaluation of the commercial banks is compulsory to ensure the financial stability of the economy. The study is an attempt to evaluate and compare the performance of commercial banks in Vietnam. One of the most effective method for analysis of financial stability of banks is CAMELS framework. The obtained results highlight the strengths and vulnerabilities of some commercial banks, underlining the need to strengthen the concerns of the decision makers from banks to improve and increase their stability. Keywords: CAMELS, bank’s stability, capital adequacy, assets quality, earnings ability, sensitivity to market. TÓM TẮT Hệ thống Ngân hàng thương mại (NHTM) Việt Nam đã có sự thay đổi lớn trong 2 thập kỷ gần đây và được coi là một phần không thể thiếu của nền kinh tế. Do đó, giám sát và đánh giá hoạt động của các NHTM là cần thiết để đảm bảo cho sự ổn định của nền tài chính quốc gia. Nghiên cứu này đánh giá và so sánh hoạt động của các NHTM Việt Nam. Một trong những phương pháp hiệu quả nhất để phân tích sự an toàn của ngân hàng là mô hình CAMELS. Các kết quả thu được làm nổi bật những điểm mạnh, điểm yếu của một số NHTM, nhấn mạnh sự quan tâm cần thiết đối với mô hình này của các nhà ra quyết định tại ngân hàng để tăng cường sự ổn định trong hoạt động kinh doanh. Từ khóa: CAMELS, an toàn trong hoạt động ngân hàng, an toàn vốn, chất lượng tài sản, khả năng sinh lời, mức độ nhạy cảm với biến động thị trường. 1. Introduction The economic progression is significantly dependent upon the utilization of resources and most importantly operational efficiency of various sectors. The banking sector is considered as an integral part of the financial system which plays a key role in the economic development of any country through stimulating of capital formation and facilitating the monetary policy. Banking business has been shaped as the global business since the functions of banking business have reached beyond the border of a country. Most importantly, rest other businesses are greatly dependent upon the stable performance of banking business. In the context of Vietnam, the banking sector is one of the fastest growing sectors. Until the end of 2018, there are 35 domestic commercial banks, 2 joint – venture banks and 9 foreign commercial banks operating in Vietnam. Over the last twenty years, Vietnam has achieved noticeable success regarding the access to banking services. However, modern banking is becoming more complex in nature than before since the varieties of risks are getting more complex nowadays, which leads to the fact that evaluating the performance of commercial banks is a challenging task. There are so many factors need to be considered while differentiating good banks from bad ones. In order to cope up with complexity and a mix of risk exposures to banking system properly, the bank regulators have introduced a number of measures over the past years to link the regulation of banks to the level of risk and financial viability. However, on – site supervisory guidelines are not enough to evaluate the stability of banks. Hence, it becomes imperative to develop a system of rating framework for carefully evaluating the stability of banks, which enables banks to take follow – up measures that will ensure public confidence toward banking system. Therefore, this 82
2. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2019 ICYREB 2019 study attempts to evaluate the comparative performance of the selected commercial banks in Vietnam, using CAMELS framework and suggest some measures on the basis of the results of this study to further improve the financial performance of the sample banks. 2. Related Studies Barker and Holdsworth (1993) found CAMEL ratings as an effective tool for predicting bank’s failure and measuring the financial performance of banks. Barr, Killgo, Siems and Zimmel (2002) observed CAMEL rating system as a precise and constitutive tool for regulators and examiners that measures bank’s financial performance by analyzing various bank’s information collected from financial statements. Bodla and Richa (2006) used CAMEL model to evaluate the performance of SBI and ICICI from 2000 to 2004. They found that SBI performed better than the counterpart ICICI in terms off capital adequacy while ICICI performed better than the counterpart in terms of assets quality, earning quality and management quality. Angela Roman, Alina CameliaSargu (2013) used CAMELS model to analyze the financial soundness of commercial banks that operate in Romania. This research point out possible weakness and suggest necessary corrective measure to overcome the weakness, which enable to improve performance of banks in Romania. Venkatesh and Chithra (2014) used CAMELS model to analyze the financial efficiency of commercial banks in the kingdom of Bahrain. This research found that the National Bank of Bahrain which is the government bank in this country has attained highest efficiency compared to its peers in the market. Joshi, Amit and Lakhvendra (2015) attempt CAMEL model to rank 42 Indian commercial banks over 5 years (2010 - 2014). They found that Yes Bank was at the top position followed by HDFC bank and Indian Bank. In most studies above, the authors use indicators including capital adequacy ratio (CAR), Non – performing loans (NPLs), Cost to income ratio (CIR), Return on Asset (ROA), Return on Equity (ROE), liquid asset/ Total asset to evaluate the stability of commercial banks in selected countries. This is the basis for me to suggest the system for evaluating the stability of commercial banks in Vietnam. However, 4/6 studies mentioned above did not conduct research on “S” element and the two remaining researches referred “S” element as the influence of size of bank on the stability of commercial banks. Therefore, I has found some gaps for my study. Firstly, in this study, “S” element that I refer is the sensitivity to the market of commercial banks. Secondly, none of research related to commercial banks in Vietnam which have many distinctive features from others. Hence, doing research for finding out some recommendations to ensure stability for commercial banks in Vietnam is necessary. 3. Research methodology The data used in this research is obtained from the annual reports of banks from my sample. The sample is composed by 10 commercial banks in Vietnam in the period of 5 years (from 2013 to 2018). In order to evaluate and analyze the soundness of Vietnamese commercial banks, I use one of the most popular methods namely CAMELS.CAMELS framework was first known under the name CAMEL in 1979 in USA. The acronym CAMEL derives from 5 main segments of a bank operations: Capital adequacy, asset quality, management quality, earning ability and liquidity. Since 1996, out of the desire to stronger focus on risk, to the five components was added the six component “S”. Thus, CAMEL approach became CAMELS approach, where “S” refers to the sensitivity to market risk. All six parameters are relevant indicators for assessing the financial soundness of a bank, being recommended by the IMF and WB. CAMELS represents for Capital adequacy, Asset quality, Management, Earning ability, Liquidity and Sensitivity to market. 83
3. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2019 ICYREB 2019 Capital adequacy (C) is one of the most important indicators for financial health of banking sector because it guarantees the capacity of this sector to absorb the eventual losses generated by manifestation of certain risks or certain significant macroeconomic imbalances. Asset quality (A) is a significant element that measures the strength of a bank and is linked with the capital adequacy because most of the solvency risks are caused by the depreciation of assets. Management quality is great importance for the insurance of banks’ stability, which ensures the survival and growth of a bank. A sound management is a key to the performance of any organization. Earning ability (E) reflects the ability of a bank to generate and sustain profit consistently. This quality is considered as an important criterion for evaluating the profitability and performance of a bank. Liquidity (L) is a crucial aspect which expresses the financial performance of banks. Liquidity means the ability of banks to honour its obligations towards depositors. Banks can preserve adequate liquidity position either by increasing current liabilities or by converting its assets into cash quickly. Sensitivity to the market (S) expresses how adversely the bank is affected due to changes. Market risk is the effect of trading activities, non – trading activities and foreign exchange operation. The variable used in my research and the method that are computed are presented in table 1. I have computed the average separately for each of the indicators used and each parameter from the CAMELS framework for the analyzed period of time (2013 - 2018). The obtained averages have been used in order to rank the banks. Table 1: CAMELS parameters and their calculation method CAMELS Ratios Calculation method variables Capital adequacy CAR (capital adequacy ratio) Tier1 Capital + Tier Capital2 *100% Risk weightedasset Asset Quality NPL (non – performing loan) Non - performingloan (*) *100% Totalloan Management CIR (Cost to income ratio) Operatingexpense *100% Grossoperatingincome Earning Ability EBT/ Total asset Earning before tax *100% Totalasset EBT/ Total equity Earning before tax *100% Totalequity Liquidity LDR (Loan deposit ratio) Loan *100% Deposit Liquid asset/ Total asset Liquid asset *100% Totalasset Sensitivity to Ratio of the difference between Sensitiveassets-Sensitiveliabilities *100% market interest sensitive assets and interest Totalequity sensitive liabilities to the equity (*) Non - performing loans includes bad debts, debts sold to VAMC as bad debts yet to be disposed. 84
4. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2019 ICYREB 2019 4. Analysis and discussion CAMELS model has been used with intension of ranking the selected banks because it enables the analysis the financial condition of banks to be less sophisticated. In this research, the score of parameters in CAMELS model is based on the regulation of State Bank of Vietnam (SBV). 4.1. Capital adequacy Capital adequacy is assumed to be a crucial reflector of the financial soundness of a bank. In order to survive, it is indispensable to protect the stakeholder confidence and preventing its bankruptcy. Capital adequacy represents the overall financial position of a bank. It reflects whether the bank has sufficient capital to bear unexpected losses in the future and bank leverage. The higher CAR is, the stronger bank is. However, a very high CAR indicates that the bank is conservative and has not utilized the full potential of its capital. Table 2: Capital adequacy ratio of sample banks Bank’s name Average of CAR (%) Score Vietcombank 11.81 3 VietinBank 10.77 3 BIDV 9.62 3 MB 11.64 3 Techcombank 14.08 4 Sacombank 10.2 3 VPBank 12.68 4 SHB 11.72 3 ACB 12.95 4 VIB 15.40 5 Source: Annual reports of sample banks and author’s own calculation Table 2 is constructed based on the average of capital adequacy of sample banks in the period from 2013 to 2018, which indicates the financial strength and financial stability of those banks. The higher rate indicates the better financial health. According to this table, the CAR of sample banks satisfy the requirement of SBV. In detail, maintaining the average of CAR at least 2% higher than the regulation of SBV in this period is the basis for banks including Vietcombank, MB, Techcombank, VPBank, ACB, VIB applying Basel 2 in 2019 which is one year earlier than the validity date of circular 41/2016/TT – NHNN. By contrast, the CAR of BIDV, Vietinbank and Sacombank are only bit higher than the minimum rate. Therefore, applying Basel 2 from January, 1st, 2020 is the challenge for those banks because their CAR might be lower than 8%. 4.2. Asset quality Asset quality is significant aspect to assess the degree of financial strength of a bank. In order to measure the quality of asset owned by banks, I selected the ratio of non – performing loan which indicates the amount of bad debts that banks own. This is because, the proportion of loan accounts for about 60% - 70% total asset of banks and the income coming from this activity generates approximately 75% - 85% total income. The higher NPL rate is, the higher risk banks overcome. Therefore, evaluating the quality of loans could allow the author to have the overview of asset quality of commercial banks. 85
5. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2019 ICYREB 2019 Table 3: Asset quality of sample banks Bank’s name Average of NPL (%) Score Vietcombank 2.03 3 VietinBank 1.80 3 BIDV 3.31 2 MB 3.27 2 Techcombank 3.74 2 Sacombank 14.51 1 VPBank 5.45 1 SHB 4.87 2 ACB 6.07 1 VIB 5.49 1 Source: Annual reports of sample banks and author’s own calculation Table 3 shows the average of non - performing loan rate of sample banks. The rates that I indicate in this table are higher than those in banks’ annual reports. This is because the data of non – performing loan that I collect includes bad debts, debts sold to VAMC as bad debts yet to be disposed. The reason why I add the debts sold to VAMC to the data is that after buying these debts, VAMC authorizes commercial banks to deal with the debts, which means these bad debts have not been solved yet. In detail, except for the average NPL rates of Vietcombank and Vietinbank, those of the remaining banks are higher than the safety limit recommended by WB (3%). What is the worth noting is that the average NPL rate of Sacombank is 14.51% because after the merger of Sacombank and Southern Bank, Sacombank is responsible for handling with huge amount of bad debts of Southern Bank. 4.3. Management Efficiency It is another vital parameter of CAMELS model that ensures the survival and growth of a bank. A sound management is a key to the performance of any organization, which drives the management system respond quickly to a dynamic and changing environment. To assess the management efficiency, the author choose Cost to income ratio (CIR) which is the measure of the costs of running a bank in relation to its operating income. It is an important financial tool for evaluating banks. The lower the CIR is, the more efficient the bank is being run. Table 4: CIR of sample banks Bank’s name Average of CIR (%) Score Vietcombank 39.02 4 VietinBank 47.09 3 BIDV 40.54 4 MB 40.45 4 Techcombank 40.65 4 Sacombank 63.51 1 VPBank 45.01 3 SHB 53.39 2 ACB 60.15 1 VIB 55.38 2 Source: Annual reports of sample banks and author’s own calculation 86
6. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2019 ICYREB 2019 According to Table 4, entire the period, none of the banks are scored 5 point because all of banks invest in banking technology which does not optimize costs in short time. The data of annual CIR of sample banks gives an overall average of 48.52%, which is chosen to rank all the sample banks to assess their operational performance. 6/10 of sample banks give an annual average CIR of less than the overall average of the sample, whereas 4/10 banks exceed the norm. Among the sample banks, Vietcombank has the lowest CIR because this bank has a huge income coming from selling other banks’ share such as MB, Eximbank, SaigonBank, which leads to the fact that the total operating income exceeds the operating expenses. By contrast, Sacombank occupies the last position because the poor quality asset of this bank leads to the low income from interest, whereas large size of this bank requires big staff, which results in high expense for employees. 4.4. Earning ability High earning ability should reflect the bank’s current operating performance and a good indicator of future operating performance. The quality of earning is an extremely significant parameter which expresses the quality of profitability and capability of a bank to sustain quality and earning consistently. In this research, I choose 2 criteria EBT/Total asset and EBT/ Total Equity, which reflects the income per a unit of asset and a unit of equity respectively. These criteria evaluate the earning ability of commercial banks without effect of taxation policy. Table 5: Earning ratios of sample banks Average of EBT/Total Average of EBT/ Total Bank’s name Group Score Asset Equity Rate (%) Score Rate (%) Score Vietcombank 1.27 4 20.36 5 4.5 VietinBank 0.91 3 12.70 3 3 BIDV 0.89 3 19.95 5 4 MB 1.73 5 18.37 5 5 Techcombank 2.12 5 21.32 5 5 Sacombank 0.68 2 9.82 2 2 VPBank 2.29 5 28.49 5 5 SHB 1.07 4 19.34 5 4.5 ACB 1.03 4 16.66 5 4.5 VIB 1.13 4 14.59 4 4 Source: Annual reports of sample banks and author’s own calculation According to Table 5, the large commercial banks that the state is not the dominant shareholder (MB, Techcombank, VPBank) have the highest rate of profitability, especially VPBank. This is because in this period, in the trend of development of personal finance, the financial company of VPBank (FE credit) – one of the largest financial company in Vietnam generates approximately 50% profit of banks, which enables this bank to become the most efficient operating bank among the sample banks. By contrast, Sacombank is the least efficient operating bank since the low quality asset results in the high risk provision expenses which accounts for approximately 40% of bank’s income. 4.5. Liquidity Liquidity is another noteworthy aspect which expresses the financial performance of banks. Liquidity means the ability of the bank to honour its obligations toward depositors. Bank can preserve adequate liquidity position either by increasing current liabilities or by converting its asset into cash 87
7. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2019 ICYREB 2019 quickly. It also denotes the fund available with bank to meet its credit demand and cash flow requirements. In order to assess the liquidity of sample banks, the author choose criteria LDR which shows a bank’s ability to cover loan losses and withdrawals by its customers and Liquid asset/ Total asset which expresses the ability to meet the demand for payment of commercial bank. Table 6: Liquidity of sample banks Bank’s name Average of LDR Average of Liquid asset/ Total asset Group score Rate (%) Score Rate (%) Score Vietcombank 70.95 4 15.47 4 4 VietinBank 92.99 2 11.63 3 2.5 BIDV 92.22 2 14.50 3 2.5 MB 69.77 5 26.56 5 5 Techcombank 63.20 5 16.69 4 4.5 Sacombank 73.01 4 12.08 3 3.5 VPBank 73.46 4 17.12 4 4 SHB 74.50 4 10.54 3 3.5 ACB 75.14 4 20.47 5 4.5 VIB 78.75 4 25.97 5 4.5 Source: Annual reports of sample banks and author’s own calculation In terms of LDR, those ratios of VietinBank and BIDV are higher than that of regulation of SBV (90% for the commercial banks that the state is the dominant shareholder), whereas those ratios of the remaining banks are lower than the maximum percentage regulated by SBV (80% for joint stock commercial bank). Regarding the ratio of Liquid asset/ Total asset, according to Table 6, during the period, all of banks maintain these ratios higher than the minimum regulated by SBV (10%). 4.6. Sensitivity to the market Sensitivity to the market is expressed as the risk which occurs due to alteration in market conditions, for example, changes could adversely impact earning and capital. Market risk includes exposures associated with changes in interest rate, foreign exchange rates, commodity prices, etc. While all of these items are important, the primary risk in most banks is interest rate risk. Therefore, I choose the ratio of the difference between interest sensitive assets and interest sensitive liabilities to the equity. This ratio reflects a bank’s earnings exposure to interest rate movement. If the difference is large (in either a positive or negative direction), interest rate changes will have large effects on net interest income. Table 7: Ratio of the difference between interest sensitive assets and interest sensitive liabilities to the equity sample banks Bank’s name Average of Rate Score Vietcombank 72.9 3 VietinBank 96.4 1 BIDV 82.5 2 MB 83.6 2 Techcombank 132.6 1 88
8. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2019 ICYREB 2019 Sacombank - 216.1 1 VPBank 73.6 3 SHB 70.6 3 ACB 10.2 5 VIB 87.4 2 Source: Annual reports of sample banks and author’s own calculation As can be seen from Table 7, except for ACB, the remaining banks from the sample be influenced significantly by the change of interest rate. In detail, Sacombank whose sensitive assets are lower than sensitive liabilities might face to a loss if interest rate goes up. Meanwhile, other banks would earn profit if the interest rate rises. 4.7. Overall evaluation The overall ranking of the banks from my sample for the financial stability, made based on the CAMELS parameters is presented in table 8. The results of the analysis that the best positioned bank is Vietcombank, followed by Techcombank and MB and the last three ranking are BIDV, VietinBank and Sacombank. Table 8: Total score and rank of sample banks Bank’s name C A M E L S Total score Rank Vietcombank 3 3 4 4.5 4 3 3.55 1 VietinBank 3 3 3 3 2.5 1 2.83 9 BIDV 3 2 4 4 2.5 2 2.88 8 MB 3 2 4 5 5 2 3.45 3 Techcombank 4 2 4 5 4.5 1 3.53 2 Sacombank 3 1 1 2 3.5 1 1.98 10 VPBank 4 1 3 5 4 3 3.15 4 SHB 3 2 2 4.5 3.5 3 2.98 7 ACB 4 1 1 4.5 4.5 5 3.03 6 VIB 5 1 2 4 4,5 2 3.38 5 Source: Author’s own calculation 5. Conclusion CAMELS rating approach is considered as an important tool for identifying the financial strengths and weakness of a bank. This analysis helps to point out possible weakness and suggest necessary corrective measures to overcome weakness and thus improve the overall performance of a bank. This study has been conducted to examine the stability of 10 selected commercial banks in Vietnam during the period from 2013 to 2018 with respect to CAMELS ratio. It is found that all banks is higher than the benchmark of 9% as mandated by SBV. The average CAR of VIB, Techcombank and ACB are the highest whereas those of BIDV, Sacombank and Vietinbank are the lowest among sample banks. I suggest three banks having the lowest rate should increase the capital by issuing the private placement of shares for strategic partnership, increasing the retained earning, which helps banks to improve the CAR especially in case of applying Basel 2. 89
9. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2019 ICYREB 2019 Regarding to asset quality, the average of NPLs of 8/10 banks are higher than the benchmark 3% recommended by WB, especially Sacombank (14.51%). Thus, these commercial banks must enhance the credit control ability as well as actively handle with bad debts. The CIR of Vietcombank is lower than other banks, which means the efficiency of this bank is higher as compared to the others. Estimating the profitability ratios, it can be observed that VPBank’s profitability is outstanding on an average among the sample banks. This is because the proportion of unsecured loans is high, which may leads to the low stability in long term. Therefore, from my point of view, I suggest VPBank should change the credit portfolio to increase the secured loans, which ensures the stability of bank in the future. In terms of liquidity, MB has maintained comfortable liquidity position although excessive liquidity may affect profitability. By contrast, the liquidity ratio (LDR) of VietinBank and BIDV is higher than the benchmark of 90% as mandated by SBV. Hence, I suggest these two banks should expand the capital mobilization to ensure the stability. Regarding to the sensitivity to the market, ACB will be affected less than the others, meanwhile, Techcombank, Sacombank and VietinBank will be affected significantly in case of the change in interest. Hence, three banks should consider changing the asset liabilities management (ALM) policy to protect banks from risk exposure. The findings from the study can be helpful for the management of these selected banks to improve their financial performance and formulate policies that will improve their overall performance. REFERENCES [1] Angela Roman, Alina CameliaSargu (2013) Analysing the Financial Soundness of the Commercial banks in Romania: An approach based on the CAMELS framework. Procedia Economics and Finance 6 (2013) 703 – 712. [2] Barker and Holdsworth (1993) The causes of bank failures in the 1980s. Federal Reserve Bank of New York. [3] Barr, R.S.,Killgo, K.A.,SiemsT.F and Zimmel, S. (2002) Evaluating the productive efficiency and performance of US commercial banks. Managerial Finance, 28 (8) 3 -25 [4] Bodla and Richa (2006) Evaluating performance of banks through CAMEL model: A case study of SBI and ICICI. The IUP. Journal of Bank Management, (3), 49 - 63. [5] Joshi, Amit and Lakhvendra (2015) Seeking the best Indian Bank: An implementation to CAMEL model. International Journal of Applied Financial Management Perspective, 3(4), 1349 - 1358. [6] Venkatesh, D and SureshChithra (2014) Comparative performance evaluation of selected commercial banks in Kingdom of Bahrain using CAMELS method. 90