Impact of CAMEL Model on the Financial Performance of Sonali Bank PLC

Abstract

In recent years, the stability and efficiency of Bangladesh’s banking sector have come under scrutiny, particularly for major public institutions in a changing global financial context. This study evaluates the financial performance of Sonali Bank PLC – Bangladesh’s largest state-owned commercial bank – using the well-established CAMEL framework (Capital adequacy, Asset quality, Management efficiency, Earnings quality, Liquidity) over the period 2015–2024. Drawing on audited annual financial data, the research employs a quantitative longitudinal design. The analysis includes trend and correlation analyses, followed by multivariate regression to identify which CAMEL components drive return on assets (ROA). Key findings indicate that stronger capital buffers (equity-to-asset ratio) and a higher loan-to-deposit ratio are significantly associated with higher profitability, whereas a higher net interest margin is unexpectedly linked to lower ROA. Asset quality (non-performing loans) and management efficiency (cost-to-income ratio) showed no statistically significant impact on ROA in this context. Over the decade, Sonali Bank’s overall ROA improved modestly, its equity base weakened, non-performing loans declined, cost efficiency improved, and lending activity increased. These results suggest that for Sonali Bank PLC, maintaining adequate capitalization and a balanced lending strategy are critical to sustaining profitability and financial stability in the country’s banking sector. Focusing on these factors can help bank management and regulators enhance Sonali Bank’s resilience and public trust over time.