Impact of Camel on Bank Performance: A Study on Selected Private Commercial Banks in Bangladesh

Abstract

Bangladesh's private banking sector has faced continuous profitability pressures, as well as increased credit risk, emphasizing the importance of comprehensive performance review. This study evaluates how CAMEL-based indicators influence the profitability of selected private commercial banks in Bangladesh. A balanced panel dataset was constructed from audited annual reports covering ten banks over 2015 2024, yielding 100 bank-year observations. Bank performance is proxied by return on assets (ROA), while the explanatory variables capture capital adequacy (CAR), asset quality (non-performing loan ratio), management efficiency (cost-to-income ratio), earnings quality (net interest margin), and liquidity (loan-to-deposit ratio). Panel-data regression was employed, using pooled OLS as a baseline and a random-effects specification for the primary estimates; feasible generalized least squares with an AR(1) correction was applied to address serial correlation. The results show that higher non performing loans and weaker cost efficiency are associated with significantly lower ROA, whereas a stronger net interest margin has a significant positive effect on ROA. In contrast, variations in CAR and the loan-to-deposit ratio are not statistically significant after controlling for other CAMEL dimensions. Overall, the evidence suggests that profitability improvements in Bangladesh’s private banks depend chiefly on tighter credit risk management, sustained cost discipline, and strategies that protect core interest spreads, alongside ongoing prudential attention to capital and liquidity.