Ranking methodology for Islamic banking sectors – modification of the conventional CAMELS method


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The state of banking systems is an important issue. The purpose of this paper was to test whether the well-known CAMELS microeconomic methodology, generally used for ranking banks, is applicable to evaluating Islamic banking systems. The hypothesis was tested by implementing a method for a particular case, public, free data – from 2013 till the first quarter of 2018 – on Islamic banking systems from the “Islamic Financial Services Board” (IFBS) database. As expected, modifications were necessary. First, because of the lack of data (in Islamic databases, no data refer to the management (“M”)), and second, to avoid the subjectivity of the five-degree method and to reach more sensibility. Thus, a hundred-level (standardized) rating system was introduced – “CAELS 100”, where “100” refers to the levels. The other part of the methodology – creating a simple average of the (now level 100) rating of raw indicators to get the letters of CA(M)ELS in the relevant period – remained unchanged. After the data cleaning, only six countries (Bahrain, Egypt, Kuwait, Oman, Turkey, and the United Arab Emirates) were able to participate in the analysis.
The result showed that Egypt, Turkey and Kuwait were the best ones respectively. Thus, it was concluded that this “CAELS 100” methodology is suitable for evaluating Islamic banking systems.

The research was supported by the project “Intelligent specialization program at Kaposvár University”, No. EFOP-3.6.1-16-2016-00007.

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    • Figure 1. Capital adequacy indicators: CAR (dark) and Tier 1 capital to RWA (grey) for Oman from 2013A to 2018Q1
    • Figure 2. CAELS 100 results for the six countries investigated for the period 2013A–2018Q4
    • Table 1. Selected aggregated Islamic financial indicators based on the Islamic Finance Service Board (IFSB) database
    • Table 2. Relationship between the CAMELS and IFSB indicators, with denotation of the proportionality
    • Table 3. CAELS 100 results and ranking of the six countries studied
    • Table A1. Standard CAELS data of Bahrain
    • Table A2. Standard CAELS data of Egypt
    • Table A3. Standard CAELS data of Kuwait
    • Table A4. Standard CAELS data of Oman
    • Table A5. Standard CAELS data of Turkey
    • Table A6. Standard CAELS data of the United Arab Emirates
    • Conceptualization
      József Varga
    • Data curation
      József Varga, Gyöngyi Bánkuti
    • Formal Analysis
      József Varga, Gyöngyi Bánkuti
    • Methodology
      József Varga, Gyöngyi Bánkuti
    • Supervision
      József Varga
    • Writing – original draft
      József Varga, Gyöngyi Bánkuti
    • Writing – review & editing
      József Varga, Gyöngyi Bánkuti
    • Investigation
      Gyöngyi Bánkuti
    • Software
      Gyöngyi Bánkuti
    • Validation
      Gyöngyi Bánkuti
    • Visualization
      Gyöngyi Bánkuti