COMPARATIVE PERFORMANCE EVALUATION OF SELECTED COMMERCIAL BANKSIN KINGDOM OF BAHRAIN USING CAMELS METHOD

Dr Jyothi Venkatesh1

Senior LecturerBahrain Institute of Banking and Finance, Kingdom of Bahrain

Email: jgrao@bibf.comPhone: 0097317815513

Ms Chithra Suresh2

Senior LecturerBahrain Institute of Banking and Finance, Kingdom of Bahrain

Email: chithra@bibf.comPhone: 0097317815515

Abstract : The aim of this paper is to analyse the financial efficiency of selected commercial banks in kingdom of Bahrain. Bahrain which is considered as the financial hub of Middle East, play significant role in the economic activities in the Mena Region. Financial sector play a significant role in Bahrain as 16% of the GDP of Bahrain originates from financial sector. The financial efficiency of banks under study is measured by CAMELS analysis. There are 4 retail conventional banks that used as samples in this research out of the 28 conventional and Islamic retail banks in the country. Samples under study were selected based on our criterion of largest conventional banks in Bahrain within the 10th position based on asset size. Results showthat National bank of Bahrain, the government bank in the country, has attained highest efficiency compared to its peers in the market .imminent

Keywords – bank efficiency, CAMELS approach, capital adequacy, loans and deposits, market sensitivity.

1. Introduction - Role and structure of Banks in Kingdom of Bahrain

An efficient and well-functioning financial system makes criticalcontribution to economic performance by enabling transactions, 1 Dr Jyothi Venkatesh is Senior Lecturer at Bahrain Institute of Banking and Finance. She has PhD in Finance from Indian Institute of Science, India

2 Chithra Suresh is Senior Lecturer at Bahrain Institute of Banking and Finance. Chithra is completing her PhD from Bharathiar University, India.

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mobilizing savings and allocating a capital across time and space. Financial intermediaries like banks provide payment services and a variety of financial products that enable the corporate sector and household to cope with economic uncertainties by hedging, pooling, sharing and pricing risks. In both developed and developing economies, commercial banks are themain source of indirect finance to the economy.

In the Kingdom of Bahrain financial sector play a significant role in the economic development as the largest sector of the non-oil economy. It contributed 17.2% of the Kingdom’s total realGDP in 2012. The share of financial sector has been growing over the years and registered a compound annual growth rate (CAGR) of 8.14% over 2001–123 as evidenced by the table below.

Source: Central informatics organization, Bahrain.

The banking sector in Bahrain is comprised of retail and wholesale banks. These include Islamic banks operating in line with Shariah principles. Among other things, Bahrain hosts a sizeable population of foreign banks, the largest of which are BNP Paribas, Citibank, HSBC, and Standard Chartered. At the end of May 2013, the number of licensed banking institutions stood at104, including 28 conventional retail banks. The three largest local retail banks dominating the market are the National Bank ofBahrain (26 branches), Ahli United Bank (20), and BBK (19)4. This overreliance of the economy on banking sector which is the result of the diversification pursuit of the Government has some

3 Economic year book 2013: by Economic development board of Bahrain4 Economic year book 2013: by Economic development board of Bahrain

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adverse effects. Any trouble shoot on the banking sector will produce turbulences in the entire economy as the sector’s contribution is multi-fold with respect to the labour and other related sectors of the economy. Thus efficient performance of thebanking sector is imperative for the smooth functioning of the Bahrain economy.

In this paper we have analysed the financial performance of the major Banks in Bahrain using CAMELS framework . This paper is organized in five sections: The above section (section 1) provided introduction to financial intermediation and structure of banking in Bahrain. Section 2 review the available literature on the subject, section 3 describe the methodology and statement of problems, section 4 detail out the analysis of performance efficiency using CAMELS framework, and section 5 discuss the outcomes and conclusion.

Section 2 - Review of literature

Financial performances of commercial banks have always attained attention from researchers across globe. An interesting fact about the review of literature on the commercial bank’s financialperformance analysis using CAMELS is that there aren’t many studies using CAMELS framework in the GCC countries especially oncommercial banks in Kingdom of Bahrain. There are quite a large number of studies undertaken in the international perspective. Available literature on the performance evaluation of commercial banks focuses either on measuring commercial bank’s economic efficiency using Data envelopment analysis or financial efficiency using ratio analysis or CAMELS framework. In the early1970s, 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. Since then, many of the researchers used CAMELS model to rate theperformance of banks where as some of them have used CAMELS for ranking the banks performance. A large number of studies evaluating the performance of commercial banks in the reform

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period have come up. But, studies assessing the overall relative performance of banks using CAMELS framework (Capital adequacy, Asset quality, Management quality, Earnings quality, Liquidity and sensitiveness to market) ratios remain untouched. In the below section review of literature is classified based on the studies undertaken in different countries using CAMELS ranking and rating.

CAMELS framework was used by many researchers to evaluate the solvency and liquidity of commercial banks. Nimalathasan (2008) undertook a comparative study of financial performance of bankingsector in Bangladesh using CAMELS rating system. The study was done on 6562 Branches of 48 Banks in Bangladesh for the financialyear 1999-2006. The study revealed that out of 48 banks, 3 banks were rated 01 or Strong, 31 banks were rated 02 or satisfactory, 7 banks were rated 03 or Fair, 5 banks were rated 04 or Marginal and 2 banks obtained 05 or unsatisfactorily rating. NationalizedCommercial Bank (NCB) had unsatisfactorily rating and other 3 NCBs had marginal rating.

Many researchers in India have undertaken studies on performance evaluation of commercial banks using CAMEL. Bodla & Verma (2006),Gupta and Kaur (2008), Dash & Das (2009), Kaur (2010), Sushendra and Parvesh Kumar (2013) have analysed the performance Indian commercial banks using CAMEL rating or ranking. Bodla & Verma (2006), Gupta and Kaur (2008), Dash & Das (2009), Kaur (2010) used the CAMEL rating and they rated the public sector banks, private sector banks and foreign banks using different ratios though they have used the same frame work. The time span of theirstudies also differ however the consensus reached by them are more or less similar. Sushendra and Parvesh Kumar (2013) used CAMEL ranking system and they have analysed the performance of State bank of India groups. They used sub ratios to measure the State bank groups performance under each of the CAMEL category and concluded that State bank of Travancore secured first position in all categories. The major drawback of the study was that it was restricted to state bank group only. Based on the above literature, we can say that there are some studies about banks in various countries, however a detailed

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study has not yet been conducted in Kingdom of Bahrain context, in the banking sectors performance. Among all these researchers, no one has used the latest technique of CAMELS parameters to study the financial performance of banks. It is against this backdrop that the present study has been undertaken to fill up this gap by undertaking a detailed analysis of financial performance of selected conventional banks in Bahrain.

Section 3 - Research Methodology and data

This study uses a descriptive financial ratio analysis to measure, describe and analyse the performance of conventional retail banks in Bahrain during the period 2006-2012. The analytical framework applied in this study is CAMELS ranking system.

Out of the 28 conventional Banks, we have chosen 4 banks for the purpose of present study. The criteria we used in the sample selection are those banks who are among the top 15 in the countrywide ranking and who compete in the market. The four banks chosenin this study are BBK BSC, National bank of Bahrain, Ahli United bank BSC and BMI Bank BSC.

The data of the sample banks for the period of 2006-2012 have been collected from BureauVan Dijk’s Bankscope database, a comprehensive, global database of banks and from annual reports for the period 2006-2012. We collected data for the selected Banks for 2006–2012 as reported in the December 2013 of the Bankscope database. We have used 26 financial ratios (parameters) to evaluate the performance of banks under the CAMELS categories. The average of the parametersunder the study period is calculated using simple arithmetic mean. All the banks were first individually ranked based on the sub-parameters of each parameter. The sum of these ranks was thentaken to arrive at the groups average of individual banks for

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each parameter. Finally the composite rankings for the banks werearrived at after computing the average of these group averages. These sub parameter ranks are combined to get overall rank of thebank based on a major parameter (CAMEL acronym). Banks were ranked in the descending order based on the individual parameter.One-way ANOVA has been used to determine whether there is any significant difference between the means of CAMEL ratios. Jarque-Bera, Shapiro-Wilk tests and Doornick-Hansen tests are applied todetermine the normality of distribution.

Section 3.1 Objective of the Study

The objectives of our study are:1. To analyze the financial position and performance of the 4 major conventional banks in Bahrain and rank them as per their performance using CAMELS model.

Section 4 - Analysis and Discussion

Capital Adequacy

Capital is one of the important factors in the analysis of banks financial stability. Adequate capital base acts as a financial safety net against a variety of risks a bank is exposed to in itsdaily operations. Capital adequacy reflects whether the bank has enough capital to absorb unanticipated losses and declines in asset values that could otherwise cause a bank to fail, and provide protection to depositors and debt holders in the event ofliquidation. The balance sheet of the bank cannot be expanded beyond the level determined by the capital adequacy ratio. The important parameters which provides an insight into the capital adequacy of the bank that are used in the current study are (i) Tier1 ratio, (ii) Total capital ratio, (iii) capital funds to total assets, (iv) Equity to net loans, (v) Equity to customer and short term funding and (vi) equity to liabilities. These sub-parameters enable us to know the capital quality maintained by the banks under study.

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(i) Tier 1 Capital Ratio compares a banking firm's core equity capital to total risk-weighted assets. A firm's core equity capital is known as its Tier 1 capital and isthe measure of a bank's financial strength based on the sum of its equity capital and disclosed reserves, and non-redeemable, non-cumulative preferred stock. A firm's risk-weighted assets include all assets that the firm holds that are systematically weighted for credit risk. Basel committees recommend the weights which are further modified by the central banks, if required, for differentasset classes, such as cash and coins, which have zero risk, versus a letter or credit, which carries more risk.A Bank must have a Tier 1 capital ratio of 4% (as per Basel guidelines) or greater. However, in central bank ofBahrain has instructed the banks to keep 12.5% or above the minimum capital requirements5. Tier 1 capital ratios of the selected banks were averaged for the years 2006-2012 and based on that NBB ranked 1 with the highest ratio followed by BMI, BBK and AUB. (Appendix 2, Table 1)

(ii) Total capital ratio: Total Capital ratio or Capital adequacy ratio is the ratio which determines the bank's capacity to meet the time liabilities and other risks such as credit and operation risk. Banks are required to maintain this ratio which is supposed to provide "cushion" for potential losses, and thereby protects the bank's depositors and other lenders. In this ratio two types of capital are measured: tier one capital, which can absorb losses without a bank being required to cease trading, and tier two capital, which can absorb losses inthe event of a winding-up and so provides a lesser degreeof protection to depositors.(Banks in Bahrain do not keepTier 3 capital). Total capital ratio of the selected banks were averaged for the years 2006-2012 and based on that NBB is ranked 1 with the highest ratio followed by BMI, BBK and AUB. (Appendix 2, Table 2)

(iii) Capital funds to total assets: is the ratio of bank capital and reserves to total assets. This ratio is a

5 Central Bank of Bahrain rules book

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measure of the general financial soundness of the capitalstructure. Capital and reserves include funds contributedby owners, retained earnings, general and special reserves, provisions, and valuation adjustments. Capital includes tier 1 capital (paid-up shares and common stock), which is a common feature in all countries' banking systems, and total regulatory capital, which includes several specified types of subordinated debt instruments that need not be repaid if the funds are required to maintain minimum capital levels (these comprise tier 2 and tier 3 capital). Total assets includeall nonfinancial and financial assets. The higher the ratio, the better is the solvency position of the bank. Capital funds to total assets of the selected banks were averaged for the years 2006-2012 and based on that AUB isranked 1 with the highest ratio followed by BBK, NBB and BMI. (Appendix 2, Table 3)

(iv) Equity to net loans: reflects on the capital quality as it measures the financial leverage of the bank by calculating the proportion of equity and debt the bank isusing finance its assets. Total equity covers total equity reserves, total share capital and treasury stock. Net loans include loans to banks and credit institutions,customer net loans and loans to group companies. Equity to net loans of the selected banks were averaged for the years 2006-2012 and based on that NBB is ranked 1 with the highest ratio followed by BMI, BBK and AUB is ranked four. (Appendix 2, Table 4)

(v) Equity to customer and short term funding: shows the proportion of equity that is used to finance the short term funding by issuing commercial paper or short term bonds. The ratio was averaged for the years 2006-2012 andbased on that BMI ranked 1 with the highest ratio followed by NBB, BBK and AUB. (Appendix 2, Table 5)

(vi) Equity to liabilities: shows how the bank is financing its liabilities using equities. This leverage ratio is

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simply another way of looking at the equity funding of the balance sheet and is an alternative measure of capital adequacy. Higher the ratio lesser will be risk for the banks. The ratio was averaged for the years 2006-2012 and based on that BMI ranked 1 with the highest ratio followed by NBB, AUB and BBK. (Appendix 2, Table 6)

Composite Capital AdequacyComposite capital adequacy is calculated by averaging the six sub-parameters of the major parameter and is expressed in Appendix 1 table 1. NBB was at the top position with group average of 18.69 and rank average of 1.67, followed by BMI with 16.13 and rank average of 2. BBK and AUB attained third position with equal rank averages.

Assets QualityThe prime risk for a bank originates from credit risk, as lendingis the primary business for the banks. Asset quality is an important parameter to test the financial credibility of the banks and their risk exposure. Asset quality can be tested using parameters like (i) loan loss reserve to gross loans, (ii) loan loss provisions to net interest revenue, (iii) loan loss reserve to impaired loans, (iv) impaired loans/ gross loans, (v) net charge offs to average gross loans, and (vi) impaired loans to equity.

(i) Loan loss reserve to gross loans: is an important sub-parameter to measure asset quality of the bank as it determines the loan quality. Higher the ratio more problematic the loans are and vice versa. A decreasing trend for this ratio over the years is desirable, as it indicates that the Banks are following more cautious approach to risk management and there is a fall in the problem loans. The ratio was averaged for the years 2006-2012 and based on that NBB was ranked first, followed by AUB, BBK and BMI respectively. (Appendix 2 Table 7)

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(ii) Loan loss provisions to net interest revenue: loan loss provisions are set aside by banks as an allowance against bad loans. This ratio clearly indicates the quality of the existing loans thereby the financial strength of the banks. The ratio was averaged for the years 2006-2012 and based on that NBB was ranked first, followed by BBK, AUB and BMI respectively. This ratio is significantly low for NBB over the years compared to the peer banks however there is an increase of 192% from 2011to 2012 for NBB where as others like BBK and BMI had a fall of 14% and 65% respectively. AUB had also a negligent increase of 1.6% of this ratio. (Appendix 2, Table 8)

(iii) loan loss reserve to impaired loans: is an important sub parameter as this indicates the charge off loans the bank will be making hence higher the ratio higher will bethe asset quality because it indicates number of past dueloans are not falling under the category of written off or charged off loans. The ratio was averaged for the years 2006-2012 and based on that NBB was ranked first, followed by AUB,BMI and BBK respectively. As evidenced in the table below, NBB has maintained a high ratio over the years however there is a decline of 61% for NBB from 2011 – 2012. Whereas it noteworthy to mention that BBK and AUB has achieved an improvement over the same year with an increase of 5% and 12% respectively. Summing up the ratios of loan loss provisions/net interest revenue and loan loss reserve to impaired loans, we can assess that there were some problem loans for NBB in the year 2011-2012 which must have contributed to this contrary performance compared to other years. (Appendix 2, Table 9)

(iv) impaired loans/ gross loans: In the performance comparison of peer banks this ratio is of prime importance as it indicates the asset quality of the banksand their ability to mitigate credit risk. Hence lower the ratio, higher the quality of the assets. The ratio

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was averaged for the years 2006-2012 and based on that NBB was ranked first, followed by AUB, BBK and BMI respectively. Though NBB has ranked first, there is an increase in the ratio for NBB for the period 2011 -12, asobserved for the other asset quality sub parameters. (Appendix 2, Table 10)

(v) net charge offs to average gross loans: Banks which are working under a common regulatory and judicial structure,this ratio is a good measure of credit quality and the bank’s policy of recognizing loan losses. This ratio provides pragmatic picture of the outstanding bad debts over a period. Lower the ratio higher the quality of the assets as charge offs are debts that are considered as non-collectable by the creditor and the debtor has becomedelinquent. The ratio was averaged for the years 2006-2012 and based on that NBB was ranked first, followed by AUB, BBK and BMI respectively. (Appendix 2, Table 11)

(vi) impaired loans to equity: These are loans that may not berecovered and are not covered by equity.6 This indicates the weakness of the loan portfolio relative to the bank’scapital. The higher this percentage, the worse is the bank’s position. The ratio was averaged for the years 2006-2012 and based on that NBB was ranked first, followed by AUB, BBK and BMI respectively. (Appendix 2, Table 12)

Composite Asset Quality

Based on the group averages of the 6 sub-parameters of asset quality, as expressed in table , NBB ranked overall first, followed by AUB, BBK and BMI. Though NBB had deteriorations with respect to asset quality in the year 2011-12, due to the steady performance over the years has led to high average for NBB ensuring high asset quality compared to other banks under study. (Appendix 1 Table 2)6 As per Bankscope definition of ratios

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Management EfficiencyManagement efficiency is another quintessential component of the CAMEL model which ensure the growth and stability of a bank. Thisparameter shows the management’s adherence with set norms, ability to plan and respond to changing environment, leadership and administrative capability. The sub – parameters chosen to measure management efficiency are (i) recurring earning power, (ii) non-operational items to net income, (iii) equity to total assets and (iv) operating profit to risk weighted assets.

(i) Recurring earning power: ratio indicates the ability of the management to ensure persistence growth trend. This also provides the long term vision of the bank and their ability to mitigate the risk and also to achieve higher returns for the share holders. The ratio was averaged forthe years 2006-2012 and based on that BBK was ranked first, followed by NBB, AUB and BMI respectively. (Appendix 2 Table 13)

(ii) non-operational items to net income: is an important sub- parameters measuring managerial efficiency as it provides an insight about the management’s ability to earn income derived from activities not related to its core operations. Non-operating income would include such items as dividend income, profits (and losses) from investments, gains (or losses) incurred due to foreign exchange, asset write-downs and other non-operating revenues and expenses. The higher this ratio, the more protection the bank has. The ratio was averaged for the years 2006-2012 and based on that BBK ranked first, followed by AUB, NBB and BMI respectively. (Appendix 2 Table 14)

(iii) Equities/total assets: This ratio measures the amount of equity protection that a bank has in place against total assets. The higher this ratio, the more protection the bank has. The ratio was averaged for the years 2006-2012 and based on that BMI was ranked first, followed by NBB, AUB and BBK respectively. (Appendix 2 Table 15)

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(iv) Operating profit to risk weighted assets: this ratio shows the management efficiency and higher the ratio better for the bank as it implies that management is ableto create profit after setting aside the mandatory risk weighted capital. Another worth mentioning fact about this ratio is that it clearly indicates the management’s adherence to the rules and regulations. It also implies the management’s ability to generate profit after maintaining the adequate capital thereby providing assurance and security to the customers. The ratio was averaged for the years 2006-2012 and based on that NBB was ranked first, BBK and AUB shared the second rank and BMI came fourth. (Appendix 2 Table 16)

Composite Management efficiencyBased on the group averages of the 4 sub-parameters of managementefficiency, BBK was ranked first, followed by NBB, AUB and BMI stood fourth position. Out of the 4 sub-parameters BBK outperformed the peers in two of the very important items, like operational income to net income and recurring earning power. Management efficiency directly or indirectly affects the earning quality and liquidity, thus BBK gaining first in this parameter, reflects on their ability to management of risk at the same time following rules and regulations too. (Appendix 1 Table 3).

Earning QualityEarning quality ratios are used to measure the ability of the bank to earn profit compared to expenses. It shows the bank's overall efficiency and performance as it examines the bank’s investment decisions as compared to their debt situations. The Sub-parameters chosen to measure earning quality in this study are (i) net interest margin, (ii) net interest revenue to averageassets, (iii) other operational incomes to average assets, (iv)

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return on average assets, (v) cost to income ratio and (vi) non-interest expense to average assets.

(i) net interest margin: The core functions of financial intermediaries like banks are accepting deposits and lending. For that reason net interest margin acts as a prime ratio in measuring the bank’s performance because it is the difference between what they receive from what they pay. Bank management is expected to keep a stable net interest margin as it illustrates the extent to whichbank is exposed to interest rate fluctuation and also reflective of bank’s management’s ability to effectively manage interest rate risk. A positive value is considered to be desirable as it implies the bank had made optimal lending decisions and is successful in getting the timely interest on loans back from the customers. The ratio was averaged for the years 2006-2012and based on that BBK was ranked first, followed by NBB, BMI and AUB respectively. (Appendix 2 Table 17)

(ii) net interest revenue to average assets: is calculated from interest earning assets subtracted from the total interest expenses divided by average assets. This ratio indicates whether a bank has positioned its assets and liabilities efficiently to take advantage of the interestrate changes. This ratio has an impact on the profitability and earning capacity of the bank as it mustbe large enough to cover the provisions for loan losses, security losses in order to be profitable and achieve grow in earnings. The ratio was averaged for the years 2006-2012 and based on that BBK was ranked first, followed by NBB, BMI and AUB respectively. (Appendix 2 Table 18)

(iii) other operational incomes to average assets: Other operational income for banks originates from fees, incomefrom securities and shares, investments, fees from derivative contracts etc. other operational incomes to average assets ratio is considered to be an important parameter in earning quality as poor performers always

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will have a low ratio. The ratio was averaged for the years 2006-2012 and based on that BBK was ranked first, followed by AUB, NBB and BMI shared 3rd position jointly. (Appendix 2 Table 19)

(iv) return on average assets: is an earning quality indicatoras it imply the profitability of the assets owned by the firm. This ratio indicates the intensity of the assets ofthe banks. It enables the stake holders of the banks in assessing the financial strength and efficiency of a company in using its resources. This ratio assists determine the performance of the banks against its planned business goals, or against its market competitors. The ratio was averaged for the years 2006-2012 and based on that NBB was ranked first, followed by BBK, AUB and BMI respectively. (Appendix 2 Table 20)

(v) cost to income ratio: is earning quality measure as it indicates the bank’s ability to manage its cost against income. Minimising cost against income denotes efficiency hence lower the ratio higher is the efficiency. It measure how costs are changing compared toincome and also reflects changes in the cost/assets ratio. The cost income ratio, defined by operating expenses divided by operating income, can be used for benchmarking by the bank when reviewing its operational efficiency. Due to the inverse relationship between the cost income ratio and the bank's profitability, highly efficient banks will have low ratio and they generate higher profits. The ratio was averaged for the years 2006-2012 and based on that AUB was ranked first, followed by NBB, BBK and BMI respectively. (Appendix 2 Table 21)

(vi) non-interest expense to average assets: Non-interest expense accrue from salaries of the staff, fees and othernon-interest expense of the bank. This ratio convey a bank’s efficiency as lower the ratio higher the earning capacity. The ratio was averaged for the years 2006-2012

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and based on that NBB was ranked first, followed by AUB, BBK and BMI respectively. (Appendix 2 Table 22)

Composite Earning QualityOn the basis of group averages of the six sub-parameteres used inmeasuring the earning quality,BBK stood first, followed by NBB, AUB and BMI respectively. (Appendix 1 Table 4)

LiquidityLiquidity is the ability of the bank to meet financial obligations as they become due, without incurring unacceptable losses. Liquidity corresponds the bank’s ability to make paymentsto its customers punctually; their inability to make these payments will detrimentally affect the bank’s solvency.Liquidity management for a bank extends to both its loan customers and depositors. Since fractional reserve banking means that banks keep only a fraction of their deposits available for immediate withdrawal, improperly managing the bank’s liquidity risk could lead to serious consequences like liquidity crisis which may lead to bank run. The sub-parameters used in this studyto analyse liquidity of the banks are (i) interbank ratio, (ii) Net Loans / Total Assets, (iii) Net Loans / Deposit & Short Term Funding, (iv) Net Loans / Total Deposits & Borrowings, (v) LiquidAssets / Dep & ST Funding and (vi) Liquid Assets / Total Deposits& Borrowing.

(i) interbank ratio: is defined as the money lent to other banks divided by the money borrowed from otherbanks. Apart from customer deposits banks rely on interbank funding as a stable source of funds. Liquidity for the banks thus arise from the degree to which banks rely on interbank funding. The Interbank Ratio which is calculated as money due from banks divided by money due to banks is an important paramenter to measure liquidity for the banks. An Interbank Ratio greater than 100%, means that the bank is a net liquidity provider to the rest of the banking sector i.e. the bank is a net

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placer rather than a net borrower of funds in the market and therefore it is more liquid. An InterbankRatio smaller than 100% implies that the bank is a net liquidity buyer7. The ratio was averaged for theyears 2006-2012 and based on that NBB was ranked first, followed by BMI, BBK and AUB respectively. Itis no surprise that NBB being the Government bank holds first position as the largest liquidity provider. There is a significant range between the ratios of first three banks to AUB which held the forth position is quite troublesome as AUB is the largest borrower over a period of 7 years. (Appendix2 Table 23)

(ii) Net Loans / Total Assets: The ratio of net loans to total assets indicates what percentage of the assetsof the bank are tied up in loans. The higher the ratio the less liquid the bank is. A low ratio of loans to deposits indicates excess liquidity, and potentially low profits, compared to other banks. A high loan-to-deposit ratio presents the risk that some loans may have to be sold at a loss to meet depositors' claims. The ratio was averaged for the years 2006-2012 and based on that NBB was ranked first, followed by AUB, BBK and BMI respectively. (Appendix 2 Table 24)

(iii) Net Loans / Deposit & Short Term Funding: The third sub-parameter used for liquidity is the ratio of net loans to deposits and short term funding. This ratio is also known as reserves-to-deposits as it shows the amount of reserve a bank have in comparison to deposits. A higher ratio indicates a less liquid bank and a lower ratio indicate that

7 Why do UK banks securitize? Mario Cerrato*, Moorad Choudhry**, John Crosby*+ and John Olukuru**University of Glasgow Business School; +Grizzly Bear Capital London;Brunel University March 20, 2013

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funding as well as transactional risks are lower forthe bank. The bank equipped with necessary funds to meet the loan customers and depositors demands. The ratio was averaged for the years 2006-2012 and basedon that NBB was ranked first, followed by AUB, BBK and BMI respectively. (Appendix 2 Table 25)

(iv) Net Loans / Total Deposits & Borrowings: This ratio measures the degree of illiquidity of the bank as itindicates the percentage of the total deposits whichare locked into non-liquid assets. A high figure denotes lower liquidity. The ratio was averaged for the years 2006-2012 and based on that NBB was rankedfirst, followed by AUB, BBK and BMI respectively. (Appendix 2 Table 26)

(v) Liquid Assets / Deposits & Short term Funding: Liquid assets form all reserve assets hence are considered to be liquid. This ratio can be considered as a deposit run as it indicates the percentage of short term obligations that could be met with the bank’s liquid assets in the case of sudden withdrawals The higher this ratio, the more liquid the bank is and the less vulnerable it is to bank run. The ratio was averaged for the years 2006-2012 and based on that BMI was ranked first, followed by NBB, BBK and AUB respectively. (Appendix2 Table 27)

(vi) Liquid Assets / Total Deposits & Borrowing: This ratio indicates the percentage of the total depositsother borrowing against the liquid assets. A high figure denotes lower liquidity. The ratio was averaged for the years 2006-2012 and based on that BBK was ranked first, followed by AUB, BMI and NBB respectively. (Appendix 2 Table 28)

Composite LiquidityOn the basis of group averages of Six parameters used in measuring liquidity as expressed in table , NBB ranked first as the highly liquid bank, followed BBK and AUB holding second

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position jointly and BMI stood last. As evidenced in the table NBB stood first in four sub-parameters against the total of 6. NBB holding the first position justifies as well as explains thatbeing the Government bank, they should be in a position to meet all the unexpected contingencies and provide best example to the peer bank in managing liquidity risk. (Appendix 1 Table 5)

SENSITIVITY TO MARKET RISKS:

In 1996, the Federal Deposit Insurance Corporation (FDIC) based in the US incorporated a 6th component in the ‘Camel’ framework of bank performance analysis. The 6th component, or the ‘S’ component came to be known as the sensitivity to market risks. This component mainly looks into how a bank responds to risks to earnings and capital due to changes in interest rates, equity prices, commodity prices and foreign exchange rates. In essence, it looks at a bank’s ability to identify, measure and manage its market risk arising from various factors as mentioned above.

In our analysis, we mention how the five banks in the sample haveperformed from 2006 to 2012 8with respect to the sensitivity to market risk factor. This market risk affects non-trading securities held in the banking book as well as trading securitiesin the trading book. The measurement of risk between these two categories of securities is interpreted mainly based on the difference in the time factor.

I. The ‘S’ component arising out of various risks of non- trading securities :

a. interest rate risk : Interest rate risk arises from thepossibility that changes in interest rates will affect the value of fixed income instruments or the future profitability of the bank. All the banks9, viz, BBK, BMI,AUB, and NBB analyse interest rate risk in the following manner: Market risk on non-trading securities 10arising from changes in interest rates: The banks are exposed to this risk as a result of repricing or maturing of these

8 Based on Notes to Accounts, Risk Management and Basel II disclosures of annual reports of the sample banks in during 2006-129 Summary from consolidated financial statements10 Available for sale securities that do not qualify as held for trading

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instruments in a given period. Duration analysis is used to measure the sensitivity of changes in interest rates to profit and capital. This involves changes in the net interest income due to 10 to 25 bps increase or decrease in interest rates. Besides, all banks, in accordance withthe CBB regulations measure and manage this risk by setting limits on the interest rate gaps on a periodic basis. Hedging strategies are used to reduce the affect of this risk in profits and capital. While day to day management of interest rate risk is the bank’s global treasurer’s responsibility, the repricing gaps are also reviewed by the ALM committee.

b. Currency risk: This is the risk that the functional currency value of the financial products in the books of these banks will fluctuate due to changes in foreign exchange rates.All banks in the sample have Bahraini Dinar as the functional currency. The financial products denominated in dollars and in other GCC currencies (except Kuwaiti Dinar) have little risk due to the peg. The risks for foreign currency for all these banks are managed through ALM and they have established limits on currency positions as delineated by the Boards of these banks. Positions are monitored on a daily basis and hedging strategies are used to reduce the sensitivity of these exposures.

c. Equity price risk: This is the risk that values of equity investments may change due to changes in the equity indicies and prices. Apart from set limits on these investments, this risk is monitored on an on-going basis by the Group risk committees of these banks. The banks also report sensitivity of the fair values of theseequity investments held as Fair Value due to +/- change in a few points change in equity indicies.

II. The ‘S’ component due to securities held of trading in the trading book:

20

Market risk sensitivity in the trading book indicates changes in the values of trading securities due to changes in interest rate, equity price, commodity price and Foreign exchange rates. All banks in the sample uniformly follow Value at Risk (VaR) methodology to measure the market risk for trading securities. This is also as per the central bank’s regulation.

VaR implies maximum loss that may be incurred by a financial institution with certain confidence interval for a definite period of time. All other banks in the sample [except AUB which uses 95% probability] use 99% VaR for a 10 day holding period to measure market risk inthe trading securities. This implies a 1% probability of loss exceeding the calculated VaR amount. These banks also conduct Back Testing to ensure that the Internal VaRmodel can predict the losses with reasonable degree of accuracy.Another sensitivity analysis conducted by these banks especially for market risk exposures is the stress testing which determines the impact of adverse scenarios on their capital and profitability. This is also done as per the regulations of the central bank. This indicates that the banks measure, monitor and are well prepared tomanage the sensitivity arising from the market risk factors.

Conclusion:

The ‘S’ component of the sample banks is analysed mainly from the data given in the balance sheets of the respective banks. Based on their disclosures as per Pillar III of the Basel requirements, we can say that allbanks in the sample have the risk measurement and reporting systems in place to deal with the sensitivitiesarising from market risks.

AUB & BBK have its own Group risk governance structure which has transparent accountability lines that enable

21

dealing with any risk sensitivity issues. The banks also implemented Internal capital Adequacy Assessment Process (ICAAP) which is the bank’s estimation of risks that are not a part of Pillar I. ICAAP and combined with the mandatory quantitative measurements of calculating probability based losses like VaR and scenario based testing, the banks can withstand the sensitiveness to market risks. BMI bank has a Board Risk Committee, which works independently of other areas that source risk. While the bank does incorporate stress tests and ICAAP, it does not use VaR for market risk as it does not have any open book position.

The government owned bank, NBB, has similar structure as AUB and BBK. The Risk Group of the bank, which play a pivotal role in extending support to all functional areasin handling risk sensitiveness. This coupled with ICAAP which enables the bank to self-assess the risks and stress-testing enables the bank to estimate its capability in handling extreme sensitiveness due to changes in interest rates, equity price, and forex rates.

Composite ranking based on CAMELThe below table depicts the overall composite performance of the sample banks using CAMEL.

Bank

Capital adequacy

Asset Quality

Management efficiency

Earning Quality

Liquidity

Average Rank

BBK 3.5 3 1 1 2.5 2.2 2NBB 1 1 2 2 1 1.4 1BMI 2 4 4 4 4 3.6 4AUB 3.5 2 3 3 2.5 2.8 3

As evidenced from the table NBB hold first position in the entireparameters understudy, followed by BBK, AUB and BMI respectively.

22

Tests of NormalityFor testing the normality of data, we proposed the hypothesis that the population distribution is normal. For this Shapiro-Wilktest, Jarque-Bera and Doornick-Hansen tests were conducted and the p-value <= 0.05, clearly proved that the data is normal. Apart from this the data was expressed in a histogram which also clearly depicted that the data is normally distributed. Both the results are given in the table and graph below.

Test  P-value

Normal

Jarque-Bera 1

0.001398 TRUE

Shapiro-Wilk 2

0.000278 TRUE

Doornick-Hansen 3

0.002324 TRUE

-2.49 -0.53 1.42 3.38 5.340%10%20%30%40%50%60%70%

Histogram Plot

FrequencyNormal

Section 5 - Conclusion

23

The banks understudy NBB, BBK, AUB and BMI are working under the same regulatory environment and are exposed to similar market conditions. In the CAMELS ranking, NBB stood first as compared toother banks. NBB was followed by BBK, AUB and BMI. With respect to the individual parameters NBB stood first in Capital adequacy (C), Asset quality(A) and Liquidity (L). As the government’s bankit is much expected that NBB will have adequate capital and they are the reservoir of liquidity in the market. However for the last two years (2011-12) NBB’s performance with respect to asset quality sub-parameters was deteriorating. Their steady performance over the years 2006-2011 has enabled them to keep thefirst position. BBK performance is commendable with respect to all sub-parameters in measuring management efficiency (M) and earning quality (E). AUB though provided a steady performance throughout the analysis, didn’t pose a threat to its competitors in any of the parameters under the study. AUB’s performance was more or less inert as they held second to third position. Being the largest bank in the island AUB has all the potentials to out beat others; nonetheless it was not happened in the study. Throughout our analysis BMI held 3rd or 4th position with respect to the variables under study. Performance of BMI was relatively low during the years 2009 -2012 which was mainly attributable to their poor asset quality, earning quality, management efficiency and liquidity. Our analysis clearly invalidates the popular conception that Government supported banks normally under performs when compared with their peers in the market. NBB’s superior performance has invalidated the same. This study has opened up another avenue for further research which is whether the financial efficiency as evidenced by CAMELS analysis for the samples understudy associates with Economic efficiency also? It will be interesting to analyse whether NBB which financially performs better than its competitors in the market is economically efficient too? In the current scenario, it will be remarkable as global trend is towards amalgamation and consolidation of financial intermediaries to increase economic efficiency.

24

25

Appendix 1

Table 1

Composite Capital AdequacyTier 1Ratio

T C Ratio Equity tototalassets

Equity/net loan

Equity/Customer &short termFunding

equity/Liabilities

Group Rank

Bank

Average

Rank

Average

Rank

Average

Rank

Average

Rank

Average

Rank

Average Rank

Average

Rank

BBK 13.01 3 17.82 3 12.21 2 18.55 4 13.31 3 11.42 4 3.17 3.5NBB 21.53 1 24.93 1 11.89 3 26.67 1 13.62 2 13.50 2 1.67 1BMI 16.03 2 18.08 2 10.68 4 20.88 2 16.44 1 14.69 1 2.00 2AUB 10.06 4 15.10 4 12.97 1 19.59 3 12.93 4 11.93 3 3.17 3.5

Table 2

Composite Asset quality 

Loan loss reserve/gross loans

  Loan Loss Prov / Net Int Rev

 Loan LossRes / Impaired Loans

  Impaired Loans / Gross Loans

  NCO / Average Gross Loans

  Impaired Loans / Equity

GroupRank

 

Bank Average

Rank

Average

Rank

Average

Rank

Average

Rank

Average

Rank

Average

Rank

Average

Rank

BBK 5.09 3 17.57 2 67.08 4 0.30 2 8.49 3 44.44 3 2.83 3

26

NBB 1.77 1 3.71 1 135.92

1 -0.15 1 -2.88 1 6.85 1 1.00 1

BMI 6.66 4 61.26 4 68.02 3 0.48 4 49.04 4 54.56 4 3.83 4AUB 2.52 2 22.83 3 122.0

72 0.29 3 9.32 2 11.01 2 2.33 2

Table 3

   Composite Management Efficiency

 

  Recurring Earning Power

  

Equity / Total Assets 

 Operating Profit / Risk Weighted Assets% 

Group Average Rank

Bank Average Rank

Average Rank

Average Rank

Average Rank    

BBK2.35

1 -28.01

110.00

41.78

2.52.13

1

NBB 2.23 2 -4.99 3 11.89 2 4.13 1 2.00 2BMI 0.77 4 13.03 4 12.47 1 -1.01 4 3.25 4AUB

2.033 -

17.47 2 10.383

1.78 2.5 2.63 3

27

Table 4

Composite Earning Quality     

 Net Interest Margin

  Net Interesst Rev / Avg Assets

  Oth Op Inc / Avg Assets

  Return OnAvg Assets(ROAA)

  Cost To Income Ratio

  Non Int Exp / Avg Assets

GroupRank

 

Bank Average

Rank

Average

Rank

Average

Rank

Average

Rank

Average

Rank

Average

Rank

Average

Rank

BBK 2.86 1 2.56 1 1.56 1 1.55 2 43.51 3 2.21 3 1.83 1NBB 2.68 2 2.54 2 0.88 3.5 2.04 1 35.26 2 1.31 1 1.92 2BMI 2.38 3 2.21 3 0.88 3.5 -0.66 4 75.78 4 3.67 4 3.58 4AUB 2.05 4 1.92 4 1.16 2 1.30 1 34.36 1 1.51 2 2.33 3

Table 5

Composite liquidity    Interbank

RatioNet loans/total assets

Net loans/Dep & ST funding

Net loans/tot Dep & bor

Liquid assets/ Dep & ST

Liquid Assets/ totDep & bor

GroupAverage

 

28

fundingBank Avera

geRank

Average

Rank

Average

Rank

Average

Rank

Average

Rank

Average

Rank Average

Rank

BBK 104.35

3 54.09 3 71.88 3 62.90 3 29.63 3 26.00 1 2.67 2.5

NBB 142.59

1 45.81 1 52.44 1 52.44 1 32.78 2 32.78 4 1.67 1

BMI 114.89

2 62.07 4 79.79 4 73.53 4 35.82 1 32.57 3 3.00 4

AUB 68.64 4 53.14 2 66.19 2 62.43 2 28.28 4 26.56 2 2.67 2.5

Appendix 2

Table 1

Tier 1 Ratio    Bank 2012 201

12010

2009

2008

2007

2006

Average Rank

BBK 14.1 13.84

14.04

12.96

12.91

12.67

10.55 13.01

3

NBB 25.8 23.5

20.9

20.3

17.4

21.37

21.46 21.53

1

BMI n.a. 18.71

18.4

21.39

20.33

8.94

8.39 13.74

2

AUB 10.8 11.3

10.1

10.9

9 9.17

9.16 10.06

4

29

Table 2

Total Capital Ratio      2012 2011 2010 2009 2008 2007 2006 Avera

ge RankBBK 14.2

914.8

518.5

717.5

120.0

623.2

916.2

17.823

NBB 27.9 25.1 22.9 22.3 19.3 28.29

28.69 24.93

1

BMI 18.44

19.37

19.73

21.77

20.33

13.06

13.88 18.08

2

AUB 15.6 16 14.1 15.1 13.8 16.25

14.84 15.10

4

Table 3

Cap Funds / Total assets    Bank 2012 2011 201

02009

2008

2007

2006

Average Rank

BBK 9.6 8.92 12.32

13.22

14 16.3

11.1 12.21

2

NBB 12.01 11.5 11.57

11.4

10.69

12.8

13.25 11.89

3

BMI n.a. n.a. 16. 18. 17. 10. 11. 10.68 4

30

87 68 4 13 66AUB 12.88 13.01 12.

7413.51

12.8

14.04

11.78 12.97

1

Table 4

Equity / Net Loans    Bank 2012 2011 2010 2009 2008 2007 2006 Avera

ge RankBBK 19.3

316.9

218.8

418.2

115.4

821.0

520.0

4 18.554

NBB 35.9 28.26

27.66

20.97

19.84

25.75

28.32 26.67

1

BMI 17.11

23.71

27.87

29.02

26.41

11.77

10.24 20.88

2

AUB 19.79

18.79

19.01

19.41

17.57

22 20.59 19.59

3

Table 5

Equity / Customer & Short Term Funding    

31

Bank 2012 2011 2010 2009 2008 2007 2006 Average Rank

BBK 11.55

10.72

13.43

13.15

13.19

15.99

15.11 13.31

3

NBB 13.74

13.06

13.15

12.94

12.04

14.85

15.57 13.62

2

BMI 13.65

16.56

19.38

24.52

22.23

9.49 9.2316.44

1

AUB 12.53

12.59

12.83

13.74

12.78

14.9 11.16 12.93

4

Table 6

Equity / Liabilities    Bank 2012 2011 2010 2009 2008 2007 2006 Avera

ge RankBBK 10.3

19.45 11.2

111.6

811.2

413.5

512.4

9 11.424

NBB 13.65

12.99

13.08

12.87

11.97

14.67

15.27 13.50

2

BMI 12.7 15.3 17.6 20.5 19.1 8.4 9.07 14.69 1

32

8 2 6 1AUB 12.1

511.8

111.9

212.6

611.6

513.3

79.96

11.933

Appendix 2

Table 7

Loan Loss Res / Gross Loans    Bank 2012 2011 2010 2009 2008 2007 2006 Avera

ge RankBBK 6.9 6.54 6.09 4.82 3.97 3.62 3.67 5.09 3NBB 3.04 1.89 1.65 1.27 1.16 1.51 1.86 1.77 1BMI 9.52 12.8

214.3

96.93 1.64 0.7 0.6

6.664

AUB 3.67 3.43 2.9 2.67 2.09 1.39 1.49 2.52 2

Table 8

Loan Loss Provisions / Net Interest Revenue    Bank 2012 2011 2010 2009 2008 2007 2006 Avera

ge RankBBK 26.8 31.2 19.83 13.4 6.39 11.9 13.2 17.57 2

33

7 7 3 1 6NBB 14.0

74.83 3.05 6.64 -

2.630 0

3.711

BMI 13.55

39.71

172.41

145.1

40 7.78 10.29 61.26

4

AUB 23.27

22.9 28.91 48.36

23.3 7.05 6.0422.83

3

Table 9

Loan Loss Res / Impaired Loans    Bank 2012 2011 2010 200

92008 2007 2006 Avera

ge RankBBK 75.1 71.5

166.8 45.

9678.1

868.9

463.0

7 67.084

NBB 39.83

103.89

123.26

200 148.28

162.92

173.26

135.92

1

BMI 47.26

54.05

76.28

77.27

83.51

63.89

73.91 68.02

3

AUB 149.78

135.33

119.47

94.79

111.57

120.71

122.83

122.07

2

34

Table 10

Impaired Loans / Gross Loans    Bank 2012 2011 2010 2009 2008 2007 2006 Avera

ge RankBBK 9.18 9.14 9.11 10.5 5.08 5.26 5.81 7.73 3NBB 7.62 1.82 1.33 0.64 0.79 0.93 1.08 2.03 1BMI 20.1

423.7

218.8

68.97 1.96 1.09 0.81

10.794

AUB 2.45 2.54 2.43 2.81 1.87 1.16 1.22 2.07 2

Table 11

NCO / Average Gross LoansBank 2012 2011 2010 2009 2008 200

72006 Avera

ge RankBBK -0.1 0.09 0 0.41 0.24 0.3 0.86 0.30 3NBB -

0.58-

0.44-

0.060.06 -

0.110.03

0.04-0.15

1

BMI 0.21 1.63 0.46 0.22 0.36 0 0 0.48 4AUB 0.39 0.24 0.81 1.07 0 -

0.2-0.3

0.292

35

Table 12

Impaired Loans / Equity    Bank 2012 2011 2010 2009 2008 2007 2006 Avera

ge RankBBK 51.02 57.82 51.4

860.5

634.1

625.9

230.1

1 44.443

NBB 21.89 6.55 4.91 3.07 4 3.65 3.87 6.85 1BMI 130.0

9114.7

279.0

533.2

27.54 9.35 7.93

54.564

AUB 12.84 13.97 13.16

14.88

10.87

5.33 5.9911.01

2

Appendix 3

Table 13

Recurring Earning PowerBank 2012 2011 2010 2009 2008 2007 2006 Avera

ge RankBBK 1.98 2.22 1.87 1.89 3.45 2.68 2.37 2.35 1NBB 2.35 2.29 2.1 2.24 1.96 2.32 2.33 2.23 2BMI 0.36 0.41 0.1 0.61 0.72 1.28 1.9 0.77 4AUB 2.15 2.08 2 2.12 2.42 1.81 1.61 2.03 3

36

Table 14

Non Op Items / Net IncomeBank 2012 2011 2010 2009 2008 2007 2006 Avera

ge RankBBK -

14.12

-28.21

34.02

13.43

-142.59

-59.53 0.92-

28.01

1

NBB -5.47

-10.53

-3.49

-0.47

-14.99 0 0

-4.99

3

BMI 20 14.71

7.93 -4.73

53.33 0 013.03 4

AUB -16.36

-21.86

-13.9

-18.53

-51.63 0 0-

17.47 2

Table 15

Equity / Tot AssetsBank 2012 2011 2010 2009 2008 2007 2006 Avera

ge RankBBK 9.32 8.61 9.83 10.1 9.66 11.3 11.1 10.00 4

37

4 4NBB 12.0

111.5 11.5

711.4 10.6

912.8 13.2

5 11.892

BMI 11.33

13.29

14.63

16.72

15.78

7.55 8.0112.47

1

AUB 10.58

10.28

10.4 10.95

10.15

11.49

8.7810.38

3

Table 16

Operating Profit / Risk Weighted Assets%    Bank 2012 2011 2010 2009 2008 2007 2006 Avera

ge RankBBK 2.08 1.77 1.22 1.6 1.32 1.65 2.79 1.78 2.5NBB 4.5 4.26 3.86 4.02 2.98 4.67 4.59 4.13 1BMI 0.11 -

0.77-

5.77-

3.21-

0.491.3 1.79

-1.014

AUB 1.95 1.79 1.58 1.27 1.65 2.23 1.97 1.78 2.5

Appendix 4

38

Table 17

Net Interest Margin    Bank 2012 2011 2010 2009 2008 2007 2006 Avera

ge RankBBK 2.58 2.71 2.75 2.84 3.04 3.13 2.95 2.86 1NBB 2.74 2.72 2.52 2.68 2.65 2.68 2.75 2.68 2BMI 2.48 2.55 2.59 2.19 2.43 2.11 2.29 2.38 3AUB 2.38 2.22 2.25 2.15 1.94 1.66 1.77 2.05 4

Table 18

Net Int Rev / Avg Assets    Bank 2012 2011 2010 2009 2008 2007 2006 Avera

ge RankBBK 2.31 2.36 2.4 2.57 2.66 2.81 2.79 2.56 1NBB 2.59 2.57 2.39 2.54 2.51 2.54 2.62 2.54 2BMI 2.25 2.24 2.29 2.06 2.34 2.06 2.23 2.21 3AUB 2.19 2.07 2.1 2 1.82 1.58 1.68 1.92 4

Table 19

Other Operational Income / Average Assets    

39

Bank 2012 2011 2010 2009 2008 2007 2006 Average Rank

BBK 1.39 1.7 1.4 1.26 2.44 1.48 1.25 1.56 1NBB 0.84 0.86 0.89 0.94 0.68 1.09 1.01  0.88 3.5BMI 0.83 1.29 0.54 0.61 0.53 0.78 1.61 0.88 3.5AUB 0.88 1.01 0.92 1.13 1.73 1.33 1.14 1.16 2

Table 20

Return On Avg Assets (ROAA)    Bank 2012 2011 2010 2009 2008 2007 2006 Avera

ge RankBBK 1.45 1.22 1.66 1.58 1.27 1.58 2.06 1.55 2NBB 1.88 1.96 1.96 2.06 1.76 2.32 2.33 2.04 1BMI 0.07 -0.56 -4.19 -2.27 -0.45 1.12 1.67 -0.66 4AUB 1.3 1.23 1.17 0.96 1.33 1.64 1.49 1.30 3

Table 21

Cost To Income Ratio    Bank 2012 2011 2010 2009 2008 2007 2006 Avera Rank

40

geBBK 46.5 45.2

750.8

450.5

932.3

537.6

441.4

43.513

NBB 31.52

33.38

35.88

35.69

38.44

36 35.94 35.26

2

BMI 88.21

88.32

96.65

77.27

74.74

54.84

50.43 75.78

4

AUB 29.93

32.46

33.58

32.21

31.55

37.73

43.09 34.36

1

Table 22

Non Int Exp / Avg Assets    Bank 2012 2011 2010 2009 2008 2007 2006 Avera

ge RankBBK 2.03 2.47 2.68 2.44 2.01 1.8 2.01 2.21 3NBB 1.45 1.27 1.25 1.41 1.16 1.31 1.3 1.31 1BMI 3.02 4 6.69 5.04 3.08 1.72 2.16 3.67 4AUB 1.43 1.47 1.62 1.98 1.54 1.21 1.32 1.51 2

41

Appendix 5

Table 23

Interbank Ratio    Bank 2012 2011 2010 2009 2008 2007 2006 Avera

ge RankBBK 115.

48169.69

86.71

151.25

102.64

46.13

58.57

104.35

3

NBB 199.3

130.9

155.4

63.86

143.7

156.1

149 142.59

1

BMI 160.8

233.6

78.24

113.8

84.28

92.54

40.97

114.89

2

AUB 53.53

93.53

72.13

55.87

55.65

62.91

86.87 68.64

4

Table 24

Net Loans / Tot Assets    Bank 2012 2011 2010 2009 2008 2007 2006 Avera

ge RankBBK 48.2

350.8

752.1

555.6

762.4

453.8

955.3

8 54.093

42

NBB 33.46

40.7 41.81

54.37

53.87

49.69

46.79 45.81

1

BMI 66.21

56.04

52.5 57.62

59.75

64.13

78.23 62.07

4

AUB 53.47

54.7 54.72

56.42

57.81

52.21

42.66 53.14

2

Table 25

Net Loans / Dep & ST Funding    Bank 2012 2011 2010 2009 2008 2007 2006 Avera

ge RankBBK 59.7

663.3

771.2

772.2

285.2

175.9

675.4

71.883

NBB 38.26

46.22

47.53

61.71

60.7 57.67

54.99 52.44

1

BMI 79.75

69.85

69.54

84.5 84.17

80.63

90.11 79.79

4

AUB 63.29

66.99

67.51

70.78

72.78

67.73

54.22 66.19

2

43

Table 26

Net Loans / Total Deposits & Borrowings    Bank 2012 2011 2010 2009 2008 2007 2006 Avera

ge RankBBK 54.4

257.1

360.6

165.2

174.0

165.5

263.3

7 62.903

NBB 38.26

46.22

47.53

61.71

60.7 57.67

54.99 52.44

1

BMI 76.01

65.88

64.44

71.88

73.87

72.55

90.11 73.53

4

AUB 62.56

64.07

63.96

66.55

68.03

62.53

49.31 62.43

2

Table 27

Liquid Assets / Deposit & Short Term Funding    Bank 2012 2011 2010 2009 2008 2007 2006 Avera

ge RankBBK 28.6

228.1

136.8

633.3

929.1

530.4

120.8

5 29.633

NBB 42.11

35.22

32.35

24.33

28.25

34.78

32.39 32.78

2

BMI 22.53

36.74

45.49

49.15

44.29

34.92

17.63 35.82

1

AUB 24.54

26.55

24.49

23.28

24.13

31.06

43.928.28

4

44

Table 28

Liquid Assets / Total Deposits & Borrowing    Bank 2012 2011 2010 2009 2008 2007 2006 Avera

ge RankBBK 26.0

625.3

431.3

530.1

525.3

226.2

317.5

3 26.001

NBB 42.11

35.22

32.35

24.33

28.25

34.78

32.39 32.78

4

BMI 21.47

34.65

42.15

41.81

38.87

31.42

17.63 32.57

3

AUB 24.26

25.4 23.2 21.89

22.56

28.67

39.93 26.56

2

45

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