The Changing Relationship Between CAMEL Ratings and Bank Soundness during the Indonesian Banking Crisis
During the recent Southeast Asian financial crisis, numerous banks failed quickly and unexpectedly. This study uses a unique data set provided by Bank Indonesia to examine the changing financial soundness of Indonesian banks during this crisis. Bank Indonesia's non-public CAMEL ratings data allow the use of a continuous bank soundness measure rather than ordinal measures. In addition, panel data regression procedures that allow for the identification of the appropriate statistical model are used. We argue the nature of the risks facing the Indonesian banking community calls for the addition of a systemic risk component to the Indonesian ranking system. The empirical results show that during Indonesia's stable economic periods, four of the five traditional CAMEL components provide insights into the financial soundness of Indonesian banks. However, during Indonesia's crisis period, the relationships between financial characteristics and CAMEL ratings deteriorate and only one of the traditional CAMEL components--earnings--objectively discriminates among the ratings. The panel data results indicate systemic economy-wide forces must be explicitly considered by the rating system. Copyright 2002 by Kluwer Academic Publishers
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 19 (2002)
Issue (Month): 3 (November)
|Contact details of provider:|| Web page: http://springer.com|
|Order Information:||Web: http://www.springer.com/finance/journal/11156/PS2|
When requesting a correction, please mention this item's handle: RePEc:kap:rqfnac:v:19:y:2002:i:3:p:247-60. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla)or (Rebekah McClure)
If references are entirely missing, you can add them using this form.