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CAMELS MODELAn international bank-rating system where

bank supervisory authorities rate institutionsaccording to six factors.

The six factors are represented by theacronym "CAMELS."

The six factors examined are as follows:

C - Capital adequacy

A - Asset qualityM - Management qualityE - EarningsL - LiquidityS - Sensitivity to Market Risk

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Bank supervisory authorities assign eachbank a score on a scale of one (best)to five (worst) for each factor.

If a bank has an average score lessthan two it is considered to be a high-quality institution,

while banks with scores greater

than three are considered to be less-than-satisfactory establishments.

The system helps the supervi

soryauthority identify banks that are in need

of attention.

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What Does Capital AdequacyRatio - CAR Mean?A measure of a bank's capital. It is

expressed as a percentage of abank's risk weighted creditexposures.

Also known as "Capital to RiskWeighted Assets Ratio (CRAR)."

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This ratio is used to protect depositors andpromote the stability and efficiency offinancial systems around the world.

Two types of capital are measured:

tier one capital, which can absorb losseswithout a bank being required to ceasetrading,

tier two capital, which can absorb losses inthe event of a winding-up and so providesa lesser degree of protection to

depositors.

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What Does Asset Quality RatingMean?

A review or evaluation assessing thecredit risk associated with a

particular asset. These assets usually require interest

payments - such as a loans and

investment portfolios. How effective management is in

controlling and monitoring credit

riskcan also have an affect on the whatkind of credit rating is given.

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Many factors are considered when ratingasset quality. For example, a portfolio isappropriately diversified, what regulationsor rules have been put in to place to limitcredit risks and how efficiently operationsare being utilized.

Typically, a rating of one shows that assetquality is good and there is very littlecredit risk, while a rating of five cansignify that there are major assetquality problems and issues that need tobe managed.

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What Does Liquidity Mean?

1. The degree to which an asset or security canbe bought or sold in the market without affecting

the asset's price. Liquidity is characterized by ahigh level of trading activity. Assets that can beeasily bought or sold, are known as liquid assets.

2. The ability to convert an asset to cashquickly. Also known as "marketability".

There is no specific liquidity formula, howeverliquidity is often calculated by using liquidityratios.

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Liquidity

1. It is safer to invest in liquid assets

than illiquid ones because it is easierfor an investor to get his/her moneyout of the investment.

2. Examples of assets that are easilyconverted into cash include bluechip and money market securities.

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CAMELS MODEL What Does Market Risk Mean?

The day-to-day potential for aninvestor to experience losses fromfluctuations in securities prices. Thisrisk cannot be diversified away.

Also referred to as "systematic risk". The beta of a stock is a measure

of how much market risk a stock

faces.

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What Does Earnings Mean?

The amount of profit that acompany produces during a specificperiod.

Earnings typically refer to after-taxnet income.

Ultimately, a business's earnings are themain determinant of its share price,because earnings andthe circumstances relating to them canindicate whether the business will be

profitable and successful in the long run.

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Earnings are perhaps the single most

studied number in a company's financialstatements because they show acompany's profitability.

A business's quarterly and annual

earnings are typically compared to analystestimates and guidance provided by thebusiness itself.

In most situations, when earnings do notmeet either of those estimates, abusiness's stock price will tend to drop.

On the other hand, when actual earningsbeat estimates by a significant amount,the share price will likely surge

(increased).