Assessment of the Effect of CAMELS Indicators on Risk-Adjusted Return on Capital (RAROC) in the Banks listed in Iran’s Stock Market

Document Type : Original Article

Authors

1 MA in Financial Management, Allameh Tabataba’i University, Tehran, Iran

2 Associate Prof, Department of Finance and Banking, Allameh Tabataba’i University, Tehran, Iran.

3 Assistant Prof, Department of Finance and Banking, Allameh Tabataba’i University, Tehran, Iran.

Abstract

In this Research, The Risk-Adjusted Return on Capital (RAROC), as economic performance measurement and risk-adjusted index, was introduced and has been calculated for all the registered banks in the Tehran Stock Exchange and Over-the-Counter Market of Iran, based on contemporary methods which were extracted from earlier researches. The way in which this variable was calculated is one of the distinctions of this research. The period of this research is 8 years, from 2012 to 2019. At the next stage, the CAMELS indicators were introduced and their importance were declared. Then, the impact of these indicators on RAROC were assessed by a multiple linear regression model and Panel Data approach. The results illustrated this fact that there are numerous banks which even disclose net income in their financial statements, while based on RAROC index are not financially as safe as they seem.  Also, it has been concluded that Capital Adequacy ratio, Management Quality, Earnings Quality, and Liquidity Quality affect the RAROC. Meaning that, by improving those indicators, RAROC index will be enhanced. On the other hand, Asset Quality and Sensitivity to Market Risk have no significant effect on the RAROC.

Keywords

References

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