CAMELS-based Determinants for the Credit Rating of Turkish Deposit Banks

Serhat Yuksel, Hasan Dincer Author-Workplace-Associate Professor of Finance, School of Business and Management Sciences and Umit Hacioglu
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Serhat Yuksel: Ph.D. in Finance, Departmentof Board of Auditors, Finansbank, Istanbul

International Journal of Finance & Banking Studies, 2015, vol. 4, issue 4, 01-17

Abstract: This paper demonstratesthe relationship between CAMELS ratios and credit ratings of deposit banks in Turkey. Annual data was used for the period between 2004 and 2014 in this study. Moreover, 20 deposit banks of Turkey were analyzed and 21 different ratios of CAMELS components were used. In addition to that, credit ratings of these banks were provided from Moody’s corporation or annual activity reports of the banks. After that, we created multi nominal logistic regression analysis in order to illustrate therelationship. The major finding in this study is that threecomponents (Asset Quality, Management Quality, and Sensitivityto Market Risk) of CAMELS have effectson credit ratings whereas the ratios related to Capital Adequacy and Earnings are not effective. As a result, it was recommended that Turkish deposit banks should concentrate on the percentage of fixed assets and interest income to have a better rating. Moreover, having high market share with respect to total assets and lower interest expense are also other important points for this purpose. On the other hand, Turkish deposit banks should control the proportion of financial assets and increase the amount of FX liquid assets to prevent credit ratings to decrease. Additionally, market share of banks for loans should not reach at high level for this objective.

Keywords: Banking; Credit Rating; CAMELS; Analysis; Deposits (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (10)

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