Banking Supervision, Based on an Early Warning System, Using CAMEL Ratios and a Logit Model

This paper evaluates the financial performance of Iranian banks, based on an early warning system, using Logit Predicting Model and presenting CAMEL ratios: Capital Adequate, Asset Quality, Management, Earning, and Liquidity. For this purpose, we use financial data of 17 state and private banks during the period of 2005-2011.The results suggest that 6 ratios (from 17 rations of logit regression as independent variables) are able to assess/ evaluate and supervise the banking operation. In other words, central bank, by monitoring these 6 ratios, can apply early warning system and supervise banking system. In addition, results show that there is a significant difference between average of 12 financial ratios of state and private banks.

Keywords:

Banking Supervision , Early Warning System , CAMEL Ratios , Logit Model