TITLE:
The Effect of CAMEL Model on Loan Portfolio Quality of the Haitian Banking Sector
AUTHORS:
Rocheny Sifrain
KEYWORDS:
Non-Performing Loan (NPL), Capital Adequacy, Asset Quality, Management Efficiency, Earnings Quality, Liquidity Management, Auto-Regressive Distributed Lagged (ARDL)
JOURNAL NAME:
Journal of Financial Risk Management,
Vol.13 No.1,
January
26,
2024
ABSTRACT: This paper examines the impact of CAMEL approach on Non-Performing Loans
(NPLs) of the banking sector in Haiti, using monthly data from October 2019 to
April 2023. The statistical analysis is carried out using the Auto-Regressive
Distributed Lagged (ARDL)-Error Correction Model (ECM) approach. The results
confirm the “moral hazard” hypothesis that low-capi-talization
of banks implies deterioration of loan portfolio quality. Similarly, the
findings support the “bad management II” hypothesis that past earnings are
negatively associated with increases in problem loans. Banks’ liquidly at times t and t − 1 has a positive and significant effect on NPLs, while at time t − 4 banks’ liquidity is negatively and
significantly correlated with NPLs. In contrast, management efficiency has no
influence on NPLs. Regarding the control variable of the study, the exchange
rate, at time t, it is positively and
significantly related to NPLs, supporting the “exchange
rate” hypothesis that an increase in exchange rate leads to problem loans.
Though, the findings show a significant and negative effect of exchange rate on
NPLs at time t − 4. In addition, the
CUSUM and CUSUMSQ statistics are well within the 5% critical bounds, implying
that short and long-term coefficients in the ARDL-ECM are stable. Lastly, our
findings highlight the importance of taking into account CAMEL variables and
macroeconomic variables like the exchange rate when assessing the loan
portfolio quality of Haitian banks from a financial stability perspective.