Camels

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Asset quality tells how well are the resources used for a company.

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Criterion in assessment of Asset quality

In the study of asset quality, examiners look at:

- The effect of fair (market) value of investments vs. book value of investments

- The investment risk factors when compared to capital and earnings structure

- Quality of loan underwriting, policies and procedures

- The appropriateness of investment policies and practices

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Rating

Rating

Circumstances

Meaning

1

Excellent in every criterion seen above.

High asset quality and minimal portfolio risks

2

Excellent with some Goods

high-quality assets although the level and severity of classified assets

3

Good and Acceptable everywhere

a significant degree of concern

4

At least one Preoccupying area

Severe asset quality problems

5

At least one Catastrophic area

Very severe asset quality problems

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Qualitative analysis

Question

Yes / No

Rating key

Rating

Are assets diversified to minimize risk ?

Yes

A

1

Other questions

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Total

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Quantitative analysis

Capital adequacy

2010

2009

2007

2006

NPLs to total loans

[pic 3]

Equity capital to total assets

[pic 4]

Allowance for loan loss ratio

[pic 5]

Provision for loan loss ratio

[pic 6]

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Management capabilities

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Explanation of concept

Management is the most forward-looking indicator of condition and a key determinant of whether a company possesses the ability to correctly diagnose and respond to financial stress. The management component provides examiners with objective, and not purely subjective, indicators. An assessment of management is not solely dependent on the current financial condition of the company and will not be an average of the other component ratings.

Reflected in this component rating is both the board of directors' and management's ability to identify, measure, monitor, and control the risks of the company's activities, ensure its safe and sound operations, and ensure compliance with applicable laws and regulations. Management practices should address some or all of the following risks: credit, interest rate, liquidity, transaction, compliance, reputation, strategic, and other risks.

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Criterion in assessment of management capabilities

In the study of management capabilities, examiners look at:

- Business strategy and financial performance

- A sizeable gap between strategic objectives and actual performances is a serious indicator of concern about management.

- Trend in financial performance also gives an invaluable opinion of what management really is worth.

- Internal control

- Information system: data and information must be kept safe into computers for reasons of security, integrity and privacy.

- Segregation of duties: task repartition is an important point upon which management’s work can be assessed.

- Audit program: the effectiveness of audit department in keeping the company in compliance with standards is a point to control.

- Record keeping: books must be kept in accordance with well-established accounting principles.

- Protection of physical assets: the way a company secures its sensitive asset also discloses much about management

- Education of staff: a trained staff uncovers a good management in the company

- Other management issues

- Budget performance compared to actual performance

- Effectiveness of systems which measure and monitor risk

- Risk-taking practices and method of control to mitigate risks

- Market penetration

- Integration of risk management with planning

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