ABOUT BANKING INDUSTRY Banking in India originated in the last decades of the 18th century.

The first banks were The General Bank of India which started in 1786, and the Bank of Hindustan, both of which are now defunct. The oldest bank in existence in India is the State Bank of India, which originated in the Bank of Calcutta in June 1806, which almost immediately became the Bank of Bengal. This was one of the three presidency banks, the other two being the Bank of Bombay and the Bank of Madras, all three of which were established under charters from the British East India Company. For many years the Presidency banks acted as quasi-central banks, as did their successors. The three banks merged in 1921 to form the Imperial Bank of India, which, upon India's independence, became the State Bank of India.

History
Indian merchants in Calcutta established the Union Bank in 1839, but it failed in 1848 as a Consequence of the economic crisis of 1848-49. The Allahabad Bank, established in 1865 and still functioning today, is the oldest Joint Stock bank in India.(Joint Stock Bank: A company that issues stock and requires shareholders to be held liable for the company's debt) It was not the first though. That honor belongs to the Bank of Upper India, which was established in 1863, and which survived until 1913, when it failed, with some of its assets and liabilities being transferred to the Alliance Bank of Simla. Foreign banks too started to arrive, particularly in Calcutta, in the 1860s. The Comptoire d 'Escape de Paris opened a branch in Calcutta in 1860, and another in Bombay in 1862; branches in Madras and Pondicherry, then a French colony, followed. HSBC established itself in Bengal in 1869. Calcutta was the most active trading port in India, mainly due to the trade of the British Empire, and so became a banking center. The first entirely Indian joint stock bank was the Oudh Commercial Bank, established in 1881 in Faizabad. It failed in 1958. The next was the Punjab National Bank, established in Lahore in 1895, which has survived to the present and is now one of the largest banks in India. The period between 1906 and 1911, saw the establishment of banks inspired by the Swadeshi movement. The Swadeshi movement inspired local businessmen and political figures to found banks of and for the Indian community. A number of banks established then have survived to the present such as Bank of India, Corporation Bank, Indian Bank, Bank of Baroda, Canara Bank and Central Bank of India. The fervour of Swadeshi movement lead to establishing of many private banks in Dakshina Kannada and Udupi district which were unified earlier and known by the name South

Canara ( South Kanara ) district. Four nationalised banks started in this district and also a leading private sector bank. Hence undivided Dakshina Kannada district is known as "Cradle of Indian Banking". The Reserve Bank of India, India's central banking authority, was nationalized on January 1, 1949 under the terms of the Reserve Bank of India (Transfer to Public Ownership) Act, 1948 (RBI, 2005b). In 1949, the Banking Regulation Act was enacted which empowered the Reserve Bank of India (RBI) "to regulate, control, and inspect the banks in India." The Banking Regulation Act also provided that no new bank or branch of an existing bank could be opened without a license from the RBI, and no two banks could have common directors.

Nationalization

Banks Nationalisation in India: Newspaper Clipping, Times of India, July, 20, 1969 Despite the provisions, control and regulations of Reserve Bank of India, banks in India except the State Bank of India or SBI, continued to be owned and operated by private persons. By the 1960s, the Indian banking industry had become an important tool to facilitate the development of the Indian economy. At the same time, it had emerged as a large employer, and a debate had ensued about the nationalization of the banking industry. Indira Gandhi, then Prime Minister of India, expressed the intention of the Government of India in the annual conference of the All India Congress Meeting in a paper entitled "Stray thoughts on Bank Nationalisation."The meeting received the paper with enthusiasm. Thereafter, her move was swift and sudden. The Government of India issued an ordinance and nationalised the 14 largest commercial banks with effect from the midnight of July 19, 1969. Jayaprakash Narayan, a national leader of India, described the step as a "masterstroke of political sagacity." Within two weeks of the issue of the ordinance, the Parliament passed the Banking Companies (Acquisition and Transfer of

Undertaking) Bill, and it received the presidential approval on 9 August 1969. A second dose of nationalization of 6 more commercial banks followed in 1980. The stated reason for the nationalization was to give the government more control of credit delivery. With the second dose of nationalization, the Government of India controlled around 91% of the banking business of India. Later on, inthe year 1993, the government merged New Bank of India with Punjab National Bank. It was the only merger between nationalized banks and resulted in the reduction of the number of nationalised banks from 20 to 19. After this, until the 1990s, the nationalised banks grew at a pace of around 4%, closer to the average growth rate of the Indian economy.

Liberalisation
In the early 1990s, the then Narsimha Rao government embarked on a policy of liberalization, licensing a small number of private banks. These came to be known as New Generation techsavvy banks, and included Global Trust Bank (the first of such new generation banks to be set up), which later amalgamated with Oriental Bank of Commerce, Axis Bank(earlier as UTI Bank), ICICI Bank and HDFC Bank. This move, along with the rapid growth in the economy of India, revitalized the banking sector in India, which has seen rapid growth with strong contribution from all the three sectors of banks, namely, government banks, private banks and foreign banks. The next stage for the Indian banking has been set up with the proposed relaxation in the norms for Foreign Direct Investment, where all Foreign Investors in banks may be given voting rights which could exceed the present cap of 10%,at present it has gone up to 74% with some restrictions. The new policy shook the Banking sector in India completely. Bankers, till this time, were used to the 4-6-4 method (Borrow at 4%; Lend at 6%; Go home at 4) of functioning. The new wave ushered in a modern outlook and tech-savvy methods of working for traditional banks. All this led to the retail boom in India. People not just demanded more from their banks but also received more. Currently (2007), banking in India is generally fairly mature in terms of supply, product range and reach-even though reach in rural India still remains a challenge for the private sector and foreign banks. In terms of quality of assets and capital adequacy, Indian banks are considered to have clean, strong and transparent balance sheets relative to other banks in comparable economies in its region. The Reserve Bank of India is an autonomous body, with minimal pressure from the government. The stated policy of the Bank on the Indian Rupee is to manage volatility but without any fixed exchange rate-and this has mostly been true.

With the growth in the Indian economy expected to be strong for quite some time-especially in its services sector-the demand for banking services, especially retail banking, mortgages and investment services are expected to be strong. One may also expect M&As, takeovers, and asset sales. In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its stake in Kotak Mahindra Bank (a private sector bank) to 10%. This is the first time an investor has been allowed to hold more than 5% in a private sector bank since the RBI announced norms in 2005 that any stake exceeding 5% in the private sector banks would need to be vetted by them. BANKS IN INDIA Central bank Reserve Bank of India NABARD

Nationalised banks
Allahabad Bank Andhra Bank Bank of Baroda Bank of India Bank of Maharashtra Canara Bank Central Bank of India Corporation Bank Dena Bank IDBI Bank Indian Bank Indian Overseas Bank Oriental Bank of Commerce Punjab & Sind Bank Punjab National Bank Syndicate Bank UCO Bank Union Bank of India United Bank of India Vijaya Bank

State Bank Group

State Bank of India State Bank of Bikaner & Jaipur State Bank of Hyderabad State Bank of Indore State Bank of Mysore State Bank of Patiala State Bank of Travancore

Private banks
Axis Bank Bank of Rajasthan Bharat Overseas Bank Catholic Syrian Bank Dhanalakshmi Bank South Indian Bank City Union Bank Federal Bank HDFC Bank ICICI Bank IndusInd Bank ING Vysya Bank Jammu & Kashmir Bank Karnataka Bank Limited Karur Vysya Bank Kotak Mahindra Bank Lakshmi Vilas Bank Nainital Bank Ratnakar Bank Saraswat Bank Tamilnad Mercantile Bank Limited Yes Bank

Foreign banks
ABN AMRO Abu Dhabi Commercial Bank Antwerp Diamond Bank Arab Bangladesh Bank Bank International Indonesia Bank of America Bank of Bahrain

& Kuwait Bank of Ceylon Bank of Nova Scotia Bank of Tokyo Mitsubishi UFJ Barclays Bank Citibank India HSBC Standard Chartered Deutsche Bank Royal Bank of Scotland

Regional Rural banks

North Malabar Gramin Bank South Malabar Gramin Bank Pragathi Gramin Bank Shreyas Gramin Bank

Financial Services
Real Time Gross Settlement(RTGS) National Electronic Fund Transfer (NEFT) Structured Financial Messaging System (SFMS) CashTree Cashnet Automated Teller Machine (ATM) BANKS IN ASIA Sovereign states Afghanistan Armenia1 Azerbaijan1 Bahrain Bangladesh Bhutan Brunei Burma2 Cambodia People's Republic of China Cyprus1 East Timor3 Egypt4 Georgia4 India Indonesia Iran Iraq Israel Japan Jordan Kazakhstan4 North Korea South Korea Kuwait Kyrgyzstan Laos Lebanon Malaysia Maldives Mongolia Nepal Oman Pakistan Philippines Qatar Russia4 Saudi Arabia Singapore Sri Lanka Syria Tajikistan Thailand Turkey4 Turkmenistan United Arab Emirates Uzbekistan Vietnam Yemen

States with limited recognition

Abkhazia1 Nagorno-Karabakh Northern Cyprus Palestine Republic of China5 South Ossetia1

Dependencies, autonomies other territories

Aceh Adjara1 Akrotiri and Dhekelia Altai British Indian Ocean Territory Buryatia Christmas Island Cocos (Keeling) Islands Guangxi Hong Kong Inner Mongolia Iraqi Kurdistan Khakassia Macau Nakhchivan Ningxia Papua Sakha Republic Tibet Tuva West Papua Xinjiang

RESEARCH METHODOLOGY
NEED FOR THE STUDY: In the recent years the financial system especially the banks have undergone numerous changes in the form of reforms, regulations & norms. CAMEL framework for the performance evaluation of banks is an addition to this. The study is conducted to analyze the financial performance of the bank by using CAMEL model and to identify pros and cons of this model. Financial ratios are often used to measure the over all financial soundness of a bank and the quality of its management. OBJECTIVES OF STUDY: To Know the Financial strengths and weakness of APGB by using CAMEL model. To suggest any suggestions if required for the improvement of bank. To know the pros and cons of the CAMEL model. RESEARCH DESIGN:
This study is based on only 5 years financial information. (a). Period of the study: The present study needs a moderate period so as to arrive at meaningful and purposeful inferences. Therefore, a 5 year period from 2007 to 2011 has been adjusted. (b). Data base: The data for the present study was collected from primary and secondary sources. Primary data was collected through direct contact with company employers. Secondary data was collected from company annual reports, company website, journals and magazines. (c). Tools and Techniques of analysis: To measure the financial performance of the company the camel has been used. This model contains the following ratios.

(d). Research Approach: Analytical in nature. The calculated ratios have been analyzed to interpret the results of the study. Introduction It is usual to measure the performance of banks using financial ratios. Often, a number of criteria such as profits, liquidity, asset quality, attitude towards risk, and management strategies must be considered. In the early 1970s, federal regulators in USA developed the CAMEL rating system to help structure the bank examination process. In 1979, the Uniform Financial Institutions Rating System was adopted to provide federal bank regulatory agencies with a framework for rating financial condition and performance of individual banks (Siems and Barr;1998).Since then, the use of the CAMEL factors in evaluating a banks financial health has become widespread among regulators. Piyu (1992) notes currently, financial ratios are often used to measure the overall financial soundness of a bank and the quality of it management. Bank regulators, for example, use financial ratios to help evaluate a banks performance as part of the CAMEL system. The evaluation factors are as follows; C-Capital adequacy A-Asset quality M-Management quality E-Earnings ability L-Liquidity Each of the six factors is scored from one to six, with one being the strongest rating. An overall composite CAMEL rating, also ranging from one to six, is then developed from this evaluation. As a whole, the CAMEL rating, which is determined after an on-site examination, provides a means to categorize banks based on their overall health, financial status, and management. The Commercial Bank Examination Manual produced by the Board of Governors of the Federal Reserve System in U.S describes the six composite rating levels as follows: CAMEL = 1 an institution that is basically sound in every respect. CAMEL = 2 an institution that is fundamentally sound but has modest weaknesses.

CAMEL = 3 an institution with financial, operational, or compliance weaknesses that give cause for supervisory concern. CAMEL = 4 an institution with serious financial weaknesses that could impair future viability CAMEL = 5 an institution with critical financial weaknesses that render the probability of failure extremely high in the near term. In Nigeria, commercial banks are examined annually for safety and soundness by the Banking Supervision Department of the Central Bank of Nigeria (CBN).

RATINGS IN CAMEL MODEL Rating Symbol A B C Rating symbol indicates Bank is sound in every respect Bank is fundamentally sound but with moderate weaknesses Financial, operational or compliance weaknesses that give cause for supervisory concern. D Serious or immoderate finance, operational and managerial weaknesses that could impair future viability E Critical financial weaknesses and there is high possibility of failure in the near future.

HISTORY ABOUT CAMEL MODEL IN INDIA In 1994, the RBI established the Board of Financial Supervision (BFS), which operates as a unit of the RBI. The entire supervisory mechanism was realigned to suit the changing needs of a strong and stable financial system. The supervisory jurisdiction of the BFS was slowly extended to the entire financial system barring the capital market institutions and the insurance sector. Its mandate is to strengthen supervision of the financial system by integrating oversight of the

activities of financial services firms. The BFS has also established a sub-committee to routinely examine auditing practices, quality, and coverage. In addition to the normal on-site inspections, Reserve Bank of India also conducts off-site surveillance which particularly focuses on the risk profile of the supervised entity. The Off-site Monitoring and Surveillance System (OSMOS) was introduced in 1995 as an additional tool for supervision of commercial banks. It was introduced with the aim to supplement the on-site inspections. Under off-site system, 12 returns (called DSB returns) are called from the financial institutions, wich focus on supervisory concerns such as capital adequacy, asset quality, large credits and concentrations, connected lending, earnings and risk exposures (viz. currency, liquidity and interest rate risks). In 1995, RBI had set up a working group under the chairmanship of Shri S. Padmanabhan to review the banking supervision system. The Committee certain recommendations and based on such suggetions a rating system for domestic and foreign banks based on the international CAMEL model combining financial management and systems and control elements was introduced for the inspection cycle commencing from July 1998. It recommended that the banks should be rated on a five point scale (A to E) based on the lines of international CAMEL rating model. CONCEPT OF CAMEL MODEL CAMEL evaluates banks performance on the following six parameters :(A) CAPITAL ADEQUACY: Capital adequacy is measured by the ratio of capital to riskweighted assets (CRAR). A sound capital base strengthens confidence of depositors A Capital Adquecy Ratio is a measure of a bank's capital. It is expressed as a percentage of a bank's risk weighted credit exposures. Also known as "Capital to Risk Weighted Assets Ratio (CRAR). Capital adequacy is measured by the ratio of capital to risk-weighted assets (CRAR). A sound capital base strengthens confidence of depositors. This ratio is used to protect depositors and promote the stability and efficiency of financial systems around the world. The following ratios have been used to know the Capital Adequacy of the bank:

CAPADR 1 A ratio of total assets to total shareholders funds. It shows the extent to which total assets are supported by shareholders funds. The lower the value of this ratio, the better the financial health of a bank. CAPADR 2 A ratio of total shareholders funds to total assets. It shows the proportion of a unit naira of equity to a unit naira of asset. The higher the value of this ratio the better the financial health of a bank. CAPADR 3 A ratio of total shareholders funds to total net loans. It shows the proportion of shareholders funds in granting loans. The higher the value of this ratio the better the financial health of a bank. CAPADR 4 A ratio of total shareholders funds t total deposits. It shows the capacity of shareholders funds to withstand sudden withdrawals. The higher the value of this ratio, the better the financial health of the company. CAPADR 5 A ratio of shareholders funds to contingency liabilities. This measures the extent to which a bank carries off-balance sheet risks. The higher the value of this ratio, the better the financial health of a bank. CAPADR 6 A ratio of total shareholders funds to total risk weighted assets (non performing loans). It measures the ability of a bank in absorbing losses arising from risk assets. The higher the value of this ratio, the better the financial health of a bank. (B) ASSET QUALITY: One of the indicators for asset quality is the ratio of non-performing loans to total loans (GNPA). The gross non-performing loans to gross advances ratio is more indicative of the quality of credit decisions made by bankers. Higher GNPA is indicative of poor credit decision-making. An asset is classified as doubtful if it is in the substandard category for 18 months in the first instance and eventually for 12 months and loss if it has been identified but not written off. These norms should be regarded as the For evaluating the qualityminimum and brought into force in a phased manner. of assets portfolio, advances covered by Government guarantees, which have turned sticky, be treated as NPAs. Exclusion of such advances should be separately shown to

facilitate fuller disclosure and greater transparency of For banks with a high NPA portfolio, two alternative approaches operations. Could be adopted. One approach can be that, all loan assets in the doubtful and loss categories should be identified and their realisable value determined. These assets could be transferred to an Assets Reconstruction Company (ARC) which would issue NPA Swap An alternative approach could be to enable the banks in difficulty to Bonds. issue bonds which could from part of Tier II capital, backed by government guarantee to make these instruments eligible for SLR investment by banks and The interest subsidy approved

instruments by LIC, GIC and Provident Funds. element in credit for the priority sector should be totally eliminated and interest rate on loans under Rs. 2 lakhs should be deregulated for scheduled commercial banks as has been done in the case of Regional Rural Banks and cooperative credit institutions (c) Management : The ratio of non-interest expenditures to total assets (MGNT) can be one of the measures to assess the working of the management. . This variable, which includes a variety of expenses, such as payroll, workers compensation and training investment, reflects the management policy stance. Management of financial institution is generally evaluated in terms of capital adequacy, asset quality, earnings and profitability, liquidity and risk sensitivity ratings. In addition, performance evaluation includes compliance with set norms, ability to plan and react to changing circumstances, technical competence, leadership and administrative ability. In effect, management rating is just an amalgam of performance in the above-mentioned areas. Sound management is one of the most important factors behind financial institutions performance. Indicators of quality of management, however, are primarily applicable to individual institutions, and cannot be easily aggregated across the sector. Furthermore, given the qualitative nature of management, it is difficult to judge its soundness just by looking at financial accounts of the banks. Nevertheless, total expenditure to total income and operating expense to total expense helps in gauging the management quality of the banking institutions. Sound management is key to bank performance but is difficult to measure. It is primarily a qualitative factor applicable to

individual institutions. Several indicators, however, can jointly serveas, for instance, efficiency measures doas an indicator of management soundness. The ratio of non-interest expenditures to total assets (MGNT) can be one of the measures to assess the working of the management. . This variable, which includes a variety of expenses, such as payroll, workers compensation and training investment, reflects the management policy stance. Efficiency Ratios demonstrate how efficiently the company uses its assets and how efficiently the company manages its operations. (d) Earnings: It can be measured as the return on asset ratio. Earnings and profitability, the prime
source of increase in capital base, is examined with regards to interest rate policies and adequacy of provisioning. In addition, it also helps to support present and future operations of the institutions. The single best indicator used to gauge earning is the Return on Assets (ROA), which is net income after taxes to total asset ratio.

Strong earnings and profitability profile of banks reflects the ability to support present and future operations. More specifically, this determines the capacity to absorb losses, finance its expansion, pay dividends to its shareholders, and build up an adequate level of capital. Being front line of defense against erosion of capital base from losses, the need for high earnings and profitability can hardly be overemphasized. Although different indicators are used to serve the purpose, the best and most widely used indicator is Return on Assets (ROA). However, for indepth analysis, another indicator Net Interest Margins (NIM) is also used. Chronically unprofitable financial institutions risk insolvency. Compared with most other indicators, trends in profitability can be more difficult to interpretfor instance, unusually high profitability can reflect excessive risk taking. ROA-Return on Assets An indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings. Calculated by dividing a company's annual earnings by its total assets, ROA is displayed as a percentage. Sometimes this is referred to as "return on investment". The formula for return on assets is:

ROA tells what earnings were generated from invested capital (assets). ROA for public companies can vary substantially and will be highly dependent on the industry. This is why when using ROA as a comparative measure, it is best to compare it against a company's previous ROA numbers or the ROA of a similar company. The assets of the company are comprised of both debt and equity. Both of these types of financing are used to fund the operations of the company. The ROA figure gives investors an idea of how effectively the company is converting the money it has to invest into net income. The higher the ROA number, the better, because the company is earning more money on less investment. For example, if one company has a net income of $1 million and total assets of $5 million, its ROA is 20%; however, if another company earns the same amount but has total assets of $10 million, it has an ROA of 10%. Based on this example, the first company is better at converting its investment into profit. When you really think about it, management's most important job is to make wise choices in allocating its resources. Anybody can make a profit by throwing a ton of money at a problem, but very few managers excel at making large profits with little investment (e) Liquidity : Cash maintained by the banks and balances with central bank, to total asset ratio (LQD) is an indicator of bank's liquidity. In general, banks with a larger volume of liquid assets are perceived safe, since these assets would allow banks to meet unexpected withdrawals. ) Liquidity An adequate liquidity position refers to a situation, where institution can obtain sufficient funds, either by increasing liabilities or by converting its assets quickly at a reasonable cost. It is, therefore, generally assessed in terms of overall assets and liability management, as mismatching gives rise to liquidity risk. Efficient fund management refers to a situation where a spread between rate sensitive assets (RSA) and rate sensitive liabilities (RSL) is maintained. The most commonly used tool to evaluate interest rate exposure is the Gap between RSA and RSL, while liquidity is gauged by liquid to total asset ratio. Initially solvent financial institutions may be driven toward closure by poor management of short-term liquidity. Indicators should cover funding sources and capture large maturity mismatches.

The term liquidity is used in various ways, all relating to availability of, An institution is said to haveaccess to, or convertibility into cash. liquidity if it can easily meet its needs for cash either because it has cash on hand or can otherwise raise or borrow cash. A market is said to be liquid if the instruments it trades can easily be An asset isbought or sold in quantity with little impact on market prices. said to be liquid if the market for that asset is liquid. The common theme in all three contexts is cash. A corporation is liquid if it has ready access to cash. A market is liquid if participants can easily convert positions into cash or conversely. An asset is liquid if it can easily be the converted to cash. The liquidity of an institution depends on: available lines of cash on hand; institution's short-term need for cash; The institution's the liquidity of the institution's assets; credit; reputation in the marketplace how willing will counterparty is to transact trades with or lend to the institution? The liquidity of a market is often measured as the size of its bid-ask spread, but this is an imperfect metric at best. More generally, Kyle (1985) Tightness is the bid-askidentifies three components of market liquidity: Depth is the volume of transactions necessary to move prices; spread; Resiliency is the speed with which prices return to equilibrium following a large trade. Examples of assets that tend to be liquid include foreign exchange; stocks traded in the Stock Exchange or recently issued Treasury bonds. Assets that are often illiquid include limited partnerships, thinly traded bonds or real estate. Cash maintained by the banks and balances with central bank, to total asset ratio (LQD) is an indicator of bank's liquidity. In general, banks with a larger volume of liquid assets are perceived safe, since these assets would allow banks to meet unexpected withdrawals. Credit deposit ratio is a tool used to study the liquidity position of the bank. It is calculated by dividing the cash held in different forms by total deposit. A high ratio shows that there is more amounts of liquid cash with the bank to met its clients cash (f) Sensitivity to market risk: Sensitivity To Market Risk: It refers to the risk that changes in market conditions could adversely impact earnings and/or capital. Market Risk encompasses exposures associated with

changes in interest rates, foreign exchange rates, commodity prices, equity prices, etc. While all of these items are important, the primary risk in most banks is interest rate risk (IRR), which will be the focus of this module. The diversified nature of bank operations makes them vulnerable to various kinds of financial risks. Sensitivity analysis reflects institutions exposure to interest rate risk, foreign exchange volatility and equity price risks (these risks are summed in market risk). Risk sensitivity is mostly evaluated in terms of managements ability to monitor and control market risk. Banks are increasingly involved in diversified operations, all of which are subject to market risk, particularly in the setting of interest rates and the carrying out of foreign exchange transactions. In countries that allow banks to make trades in stock markets or commodity exchanges, there is also a need to monitor indicators of equity and commodity price risk. Interest Rate Risk Basics In the most simplistic terms, interest rate risk is a balancing act. Banks are trying to balance the quantity of re pricing assets with the quantity of re pricing liabilities. For example, when a bank has more liabilities re pricing in a rising rate environment than assets re pricing, the net interest margin (NIM) shrinks. Conversely, if your bank is asset sensitive in a rising interest rate environment, your NIM will improve because you have more assets re pricing at higher rates. An extreme example of a re pricing imbalance would be funding 30-year fixed-rate mortgages with 6-month CDs. You can see that in a rising rate environment the impact on the NIM could be devastating as the liabilities re-price at higher rates but the assets do not. Because of this exposure, banks are required to monitor and control IRR and to maintain a reasonably wellbalanced position. Liquidity risk is financial risk due to uncertain liquidity. An institution might lose liquidity if its credit rating falls, it experiences sudden unexpected cash outflows, or some other event causes counterparties to avoid trading with or lending to the institution. A firm is also exposed to liquidity risk if markets on which it depends are subject to loss of liquidity. Liquidity risk tends to compound other risks. If a trading organization has a position in an illiquid asset, its limited ability to liquidate that position at short notice will compound its market risk. Suppose a firm has offsetting cash flows with two different counterparties on a given day. If

the counterparty that owes it a payment defaults, the firm will have to raise cash from other sources to make its payment. Should it be unable to do so, it too we default. Here, liquidity risk is compounding credit risk. Accordingly, liquidity risk has to be managed in addition to market, credit and other risks. Because of its tendency to compound other risks, it is difficult or impossible to isolate liquidity risk. In all but the most simple of circumstances, comprehensive metrics of liquidity risk don't exist. Certain techniques of asset-liability management can be applied to assessing liquidity risk. If an organization's cash flows are largely contingent, liquidity risk may be assessed using some form of scenario analysis. Construct multiple scenarios for market movements and defaults over a given period of time. Assess day-today cash flows under each scenario. Because balance sheets differed so significantly from one organization to the next, there is little standardization in how such analyses are implemented. Regulators are primarily concerned about systemic implications of liquidity risk. Business activities entail a variety of risks. For convenience, we distinguish between different categories of risk: market risk, credit risk, liquidity risk, etc. Although such categorization is convenient, it is only informal. Usage and definitions vary. Boundaries between categories are blurred. A loss due to widening credit spreads may reasonably be called a market loss or a credit loss, so market risk and credit risk overlap. Liquidity risk compounds other risks, such as market risk and credit risk. It cannot be divorced from the risks it compounds. An important but somewhat ambiguous distinguish is that between market risk and business risk. Market risk is exposure to the uncertain market value of a portfolio. Business risk is exposure to uncertainty in economic value that cannot be marked-to-market. The distinction between market risk and business risk parallels the distinction between market-value accounting and book-value accounting. The distinction between market risk and business risk is ambiguous because there is a vast "gray zone" between the two. There are many instruments for which markets exist, but the markets are illiquid. Mark-to-market values are not usually available, but mark-to-model values provide a more-or-less accurate reflection of fair value. Do these instruments pose business risk or market

risk? The decision is important because firms employ fundamentally different techniques for managing the two risks. Business risk is managed with a long-term focus. Techniques include the careful development of business plans and appropriate management oversight. book-value accounting is generally used, so the issue of day-to-day performance is not material. The focus is on achieving a good return on investment over an extended horizon. Market risk is managed with a short-term focus. Long-term losses are avoided by avoiding losses from one day to the next. On a tactical level, traders and portfolio managers employ a variety of risk metrics duration and convexity, the Greeks, beta, etc.to assess their exposures. These allow them to identify and reduce any exposures they might consider excessive. On a more strategic level, organizations manage market risk by applying risk limits to traders' or portfolio managers' activities. Increasingly, value-at-risk is being used to define and monitor these limits. Some organizations also apply stress testing to their portfolios. The various CAMEL ratios are as follows:

The Asset Quality ratios are divided into two. The mean of these ratios will be used. ASSETQR 1 A ratio of loan loss provision to total net loans. This ratio shows the ability of a bank to meet further losses on total net loans. The higher the value of this ratio, the worsening the financial health of a bank. ASSETQR 2 A ratio of loan loss provision to gross loans. It measures the ability of a bank to meet further losses on gross loans. The higher the value of this ratio, the worsening the financial health of a bank.

The management quality ratio is defined from the perspective of risk in Asset portfolio (mix). The only ratio here is a ratio of total of risk weighted assets to total assets. The higher the value of this ratio, the worsening the financial health of a bank.

The Earnings Ability ratios are two. The average of these ratios will be used. These are: EargAR1 (ROA) A ratio of net profit after tax to total assets. It measures a unit yield of profit to a unit value of assets. The higher the value of this ratio, the better the financial health of a bank. EargAR2 (ROE) A ratio of net profit after tax to total shareholders funds. It measures a unit yield of profit to a unit value of total shareholders funds. The higher the value of this ratio, the better the financial health of a bank.

The Liquidity ratios are three. The average of these ratios will be used. Liq R1 A ratio of total net loans to total deposits. It shows how far a bank has tied up its deposits in less liquid assets. The higher the value of this ratio, theweaker the financial health of a bank. Liq R2 A ratio of demand liabilities to total deposits. This shows the portion of total deposits that is in the risk of sudden withdrawals. Liq R3 A ratio of gross loans to total deposit. It shows how a bank has tied its deposit in less liquid assets. The higher the value of this ratio, the weaker the financial health of a bank.

DATA ANALYSIS AND INTERPRETATION

Capital adequacy ratios:

Capital adequacy ratio 1: A ratio of total assets to total
shareholders funds. It shows the extent to which total assets are supported by shareholders funds. The lower the value of this ratio, the better the financial health of a bank

Year 2006-07 2007-08 2008-09 2009-10 2010-11

Total Assets 35648450 43923886 46029470 55803139 68302818

Total Shareholders Funds 423426 423426 423426 423426 423426

Capital Adequacy Ratio1 84.19 103.73 108.70 131.78 161.30

Capital Adequacy Ratio 1 180 160 140 120 100 80 60 40 20 0 2006

Capital Adequacy Ratios

Capital Adequacy Ratio 1

2007

2008

2009 Year

2010

2011

2012

INTERPRETATION: From the above chart it indicates that the ratio was in increasing trend
for every year continuously. In the year 2007 the ratio was 84.19 and then it was increased continuously for the subsequent years and reached to 161.30 in the year 2011. It was not ahealthy

situation for the bank. Therefore bank was not maintaining sufficient capital by comparing with total assets.

Capital Adequacy Ratio 2: A ratio of total shareholders funds to total assets. It shows the
proportion of a unit naira of equity to a unit naira of asset. The higher the value of this ratio the better the financial health of a bank.

Year 2006-07 2007-08 2008-09 2009-10 2010-11

Total Shareholders Funds 423426 423426 423426 423426 423426

Total Assets 35648450 43923886 46029470 55803139 68302818

Capital Adequacy Ratio 2

0.011 0.0096 0.0091 0.0075 0.0061

Capital Adequacy Ratio 2 0.012

Capital Adequacy Ratios

0.01 0.008 0.006 0.004 0.002 0 2006 2007 2008 2009 2010 2011 2012 Year Capital Adequacy Ratio 2

INTERPRETATION: From the above chart it indicates that the ratio was in decreasing trend
for every year continuously. In the year 2007 the ratio was 0.011 and then it was decreased continuously for the subsequent years and reached to 0.0061 in the year 2011. It was not ahealthy

situation for the bank. Therefore bank was not maintaining sufficient capital by comparing with total assets.

Capital Adequacy Ratio 3:A ratio of total shareholders funds to total net loans. It shows the
proportion of shareholders funds in granting loans. The higher the value of this ratio the better the financial health of a bank.

Year
2006-07 2007-08 2008-09 2009-10 2010-11

Total Shareholders Funds 423426 423426 423426 423426 423426

Total Net Loans 23471454 29373177 30440335 35052791 42277561

Capital Adequacy Ratio 3 0.018 0.014 0.013 0.012 0.010

Capital Adequacy Ratio 3 0.012

Capital Adequacy Ratios

0.01 0.008 0.006 0.004 0.002 0 2006 2007 2008 2009 2010 2011 2012 Year Capital Adequacy Ratio 3

INTERPRETATION: From the above chart it indicates that the ratio was in decreasing trend
for every year continuously. In the year 2007 the ratio was 0.018 and then it was decreased continuously for the subsequent years and reached to 0.010 in the year 2011. It was not ahealthy situation for the bank. Therefore bank was not maintaining sufficient capital in order to granting loans.

Capital Adequacy Ratio 4: A ratio of total shareholders funds t total deposits. It shows the
capacity of shareholders funds to withstand sudden withdrawals. The higher the value of this ratio, the better the financial health of the company.

Year
2006-07 2007-08 2008-09 2009-10 2010-11

Total Shareholders Funds 423426 423426 423426 423426 423426

Total Deposits 23678077 28120927 30377076 35173369 40790510

Capital Adequacy Ratio 4

0.017 0.015 0.013 0.012 0.010

Capital Adequacy Ratio 4 0.018 0.016 0.014 0.012 0.01 0.008 0.006 0.004 0.002 0 2006 2007 2008 2009 2010 2011 2012 Year

Capital Adequacy Ratios

Capital Adequacy Ratio 4

INTERPRETATION: From the above chart it indicates that the ratio was in decreasing trend
for every year continuously. In the year 2007 the ratio was 0.017 and then it was increased continuously for the subsequent years and reached to 0.010 in the year 2011. It was not ahealthy situation for the bank. Therefore bank was not maintaining sufficient capital in order to meet the sudden withdrawals. .

Capital Adequacy Ratio 5: A ratio of shareholders funds to contingency liabilities. This measures
the extent to which a bank carries off-balance sheet risks. The higher the value of this ratio, the better the financial health of a bank.

Year
2006-07 2007-08 2008-09 2009-10 2010-11

Total Shareholders Funds

Contingency Liabilities 103999 155023 149316 116768 118905

Capital Adequacy Ratio 5

423426 423426 423426 423426 423426

4.071 2.731 2.835 3.626 3.561

Capital Adequacy Ratio 5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 2006

Capital Adequacy Ratios

Capital Adequacy Ratio 5

2007

2008

2009 Year

2010

2011

2012

INTERPRETATION: From the above chart it indicates in the year 2007 the ratio was 84.18
and then it was decreasing trend for the year 2008 and 2009, again it was increased for the year 2010-3.626 and 2011-3.561. Therefore in the year 2007 the bank was maintaining sufficient capital in order to meet the future risk.

Capital Adequacy Ratio6: A ratio of total shareholders funds to total risk weighted assets (non
performing loans). It measures the ability of a bank in absorbing losses arising from risk assets. The higher the value of this ratio, the better the financial health of a bank.

Year

Total Shareholders Funds

Total Riskweighted Assets 89268 94574 95875

Capital Adequacy Ratio 6

2006-07 2007-08 2008-09

423426 423426 423426

4.743 4.477 4.416

2009-10 2010-11

423426 423426

93347 82911

4.536 5.106

Capital Adequacy Ratio 6 5.2 5.1 5 4.9 4.8 4.7 4.6 4.5 4.4 4.3 2006

Capital Adequacy Ratios

Capital Adequacy Ratio 6

2007

2008

2009 Year

2010

2011

2012

INTERPRETATION: From the above chart it indicates in the year 2007 the ratio was 4.743
and then it was decreasing trend for the year 2008- 4.471 and 2009- 4.416, again it was increased for the year 2010-4.536 and 2011-5.106, It was not ahealthy situation for the bank. Therefore in the year 2011 the bank was maintaining sufficient capital by comparing with total risk weighted assets.

Asset Quality Ratios:

Asset Quality Ratio 1: A ratio of loan loss provision to total net loans. This ratio shows the Year 2006-07 2007-08 2008-09 2009-10 2010-11
Loan Loss Provisions

Total Net Loans 23471454 29373177 30440335 35052791 42277561

Asset Quality Ratio 1 0.0036 0.0031 0.0031 0.0026 0.0019

84534 93558 95671 93242 82911

ability of a bank to meet further losses on total net loans. The higher the value of this ratio, the worsening the financial health of a bank.

Asset Quality Ratio 1 0.004

Asset Quality Ratios

0.0035 0.003 0.0025 0.002 0.0015 0.001 0.0005 0 2006 2007 2008 2009 2010 2011 2012 Year Asset Quality Ratio 1

INTERPRETATION: From the above chart it indicates that the ratio was in decreasing trend
for every year continuously. In the year 2007 the ratio was 0.0036 and then it was decreased continuously for the subsequent years and reached to 0.0019 in the year 2011. It was a healthy situation for the bank. This ratio shows the ability of a bank to meet further losses on total net loans.

Asset Quality Ratio 2:A ratio of loan loss provision to total net loans. This ratio shows the ability of
a bank to meet further losses on total net loans. The higher the value of this ratio, the worsening the financial health of a bank.

Year

Loan Loss Provisions

Total Gross Loans 23779387 29721749 30823268 35635507 42910149

Asset Quality Ratio 2 0.0035 0.0031 0.0031 0.0026 0.0019

2006-07 84534 2007-08 93558 2008-09 95671 2009-10 93242 2010-11 82911

Asset Quality Ratio 2 0.004

Asset Quality Ratios

0.0035 0.003 0.0025 0.002 0.0015 0.001 0.0005 0 2006 2007 2008 2009 2010 2011 2012 Year Asset Quality Ratio 2

INTERPRETATION: From the above chart it indicates that the ratio was in decreasing trend
for every year continuously. In the year 2007 the ratio was 0.0035 and then it was decreased continuously for the subsequent years and reached to 0.0019 in the year 2011. It was a healthy situation for the bank. This ratio shows the ability of a bank to meet further losses on total net loans.

Management Quality Ratio: The management quality ratio is defined from the
perspective of risk in Asset portfolio (mix). The only ratio here is a ratio of total of risk weighted assets to total assets. The higher the value of this ratio, the worsening the financial health of a bank.

Year

Total Riskweighted Assets 89268 94574 95875

Total Assets

Management Quality Ratio

2006-07 2007-08 2008-09

35648450 43923886 46029470

0.0025 0.0021 0.0020

2009-10 2010-11

93347 82911

55803139 68302818

0.0016 0.0012

Management Quality Ratio 0.003

Asset Quality Ratios

0.0025 0.002 0.0015 0.001 0.0005 0 2006 2007 2008 2009 2010 2011 2012 Year Management Quality Ratio

INTERPRETATION: From the above chart it indicates that the ratio was in decreasing trend
for every year continuously. In the year 2007 the ratio was 0.025 and then it was decreased continuously for the subsequent years and reached to 0.0012 in the year 2011. It was a healthy situation for the bank. Therefore bank was not maintaining sufficient total assets comparing with the total risk weighted assets.. .

Earnings Ability Ratios:

Earnings Ability Ratio1: A ratio of net profit after tax to total assets. It measures a unit
yield of profit to a unit value of assets. The higher the value of this ratio, the better the financial health of a bank.

Year

Net Profit After Tax

Total Assets

Earnings Ability Ratios1

2006-07 2007-08 2008-09 2009-10 2010-11

820573 904909 759554 1066879 1301289

35648450 43923886 46029470 55803139 68302818

0.023 0.020 0.016 0.019 0.019

Earnings Ability Ratio 1 0.025

Earnings Ability Ratios

0.02 0.015 Earnings Ability Ratio 1 0.01 0.005 0 2006 2007 2008 2009 2010 2011 2012 Year

INTERPRETATION: From the above chart it indicates in the year 2007 the ratio was 0.023
and then it was decreasing trend for the year 2008- 0.020 and 2009- 0.016, again it was increased for the year 2010-0.019 and 2011-0.019, It was ahealthy situation for the bank. Therefore in the year 2007 the bank was maintaining sufficient net profit by comparing with total assets.

Earnings Ability Ratio2: A ratio of net profit after tax to total shareholders funds. It
measures a unit yield of profit to a unit value of total shareholders funds. The higher the value of this ratio, the better the financial health of a bank.

Year 2006-07 2007-08 2008-09 2009-10 2010-11

Net Profit After Tax 820573 904909 759554 1066879 1301289

Total Shareholders Funds 423426 423426 423426 423426 423426

Earnings Ability Ratios2

1.937 2.137 1.793 2.519 3.073

Earnings Ability Ratio 2 3.5

Earnings Ability Ratios

3 2.5 2 1.5 1 0.5 0 2006 2007 2008 2009 Year 2010 2011 2012 Earnings Ability Ratio 2

INTERPRETATION: From the year 2007-2011 the APGB Earnings ability ratio is 1.937, 2.137, 1.793, 2.519, and 3.073 increased, It indicates in the year bank was maintaining net profit by comparing remaining years, It was ahealthy situation for the bank.

Liquidity Ratios:

Liquidity Ratio1:A ratio of total net loans to total deposits. It shows how far a bank has
tied up its deposits in less liquid assets. The higher the value of this ratio, theweaker the financial health of a bank.

Year 2006-07 2007-08 2008-09 2009-10 2010-11

Total Net Loans 23471454 29373177 30440335 35052791 42277561

Total Deposits 23678077 28120927 30377076 35173369 40790510

Liquidity Ratio1 0.991 1.044 1.002 0.996 1.036

Liquidity Ratio 1 1.05 1.04

Liquidity Ratios

1.03 1.02 1.01 1 0.99 0.98 2006 2007 2008 2009 Year 2010 2011 2012 Liquidity Ratio 1

INTERPRETATION: From the year 2007-2011 the APGB Liquidity ratio1 is 0.991, 1.044, 1.002, 0.996 and 1.036.it indicates in the year 2007 the APGB Liquidity ratio 1 was 0.991, and then it was increasing trend for the year 2008-1.044. Again it was decreased for the year20091.002 and 2010-0.996. , It was ahealthy situation for the bank.Therefore in the year 2011 the bank was tied up its deposits in less liquid assets.

Liquidity Ratio2: A ratio of demand liabilities to total deposits. This shows the portion
of total deposits that is in the risk of sudden withdrawals.

Year 2006-07 2007-08 2008-09 2009-10 2010-11

Demand Liabilities 2214493 1842781 1848195 2262096 2676321

Total Deposits 23678077 28120927 30377076 35173369 40790510

Liquidity Ratio2 0.093 0.065 0.060 0.064 0.065

Liquidity Ratio 2 0.1 0.09 0.08 0.07 0.06 0.05 0.04 0.03 0.02 0.01 0 2006

Liquidity Ratios

Liquidity Ratio 2

2007

2008

2009 Year

2010

2011

2012

INTERPRETATION: From the above chart it indicates in the year 2007 the ratio was 0.093
and then it was decreasing trend for the year 2008- 0.065 and 2009- 0.060, again it was increased for the year 2010-0.064 and 2011-0.065,It was ahealthy situation for the bank..

Liquidity Ratio3: A ratio of gross loans to total deposit. It shows how a bank has tied its
deposit in less liquid assets. The higher the value of this ratio, the weaker the financial health of a bank.

Year 2006-07 2007-08 2008-09 2009-10 2010-11

Total Gross Loans 23779387 29721749 30823268 35635507 42910149

Total Deposits 23678077 28120927 30377076 35173369 40790510

Liquidity Ratio3 1.004 1.056 1.014 1.013 1.051

Liquidity Ratio 3 1.06

Liquidity Ratios

1.05 1.04 1.03 1.02 1.01 1 2006 Liquidity Ratio 3

2007

2008

2009 Year

2010

2011

2012

INTERPRETATION: From the above chart it indicates in the year 2007 the ratio was 1.004
and then it was increasing trend for the year 2008- 1.056, then it was decreased for the year 2009-1.014 and 2010-1.013, again it was increased for the year2011-1.051. It was ahealthy situation for the bank..