Global Banking Operations and Strategy

The report has analysed the financial performance of Royal Bank of Scotland (RBS) with the help of CAMELS approach. Each of the aspects of CAMELS have been analysed from the perspective of RBS. Based on this discussion, it has been found that financial leverage of the bank has declined drastically. Moreover, the analysis has also identified that the banks have been able to recover the interest payments from the banks.
Analysis of financial position of Royal Bank of Scotland by CAMELS Approach
CAMELS Approach is one of the useful approaches for analyzing financial position of a financial institution. It is widely used for evaluating the risks that are associated with the different operations of a bank (Das and Sy, 2012: Said, 2003). The approach helps assists the banks to evaluate its creditworthiness. In this section of the paper the financial position of Royal Bank of Scotland (RBS) is analysed by applying CAMELS approach.
The factors of CAMEL approach are analysed with respect to RBS data that are obtained from its Annual Report over the 5 years (2008-2012).
Capital Adequacy
RBS has to ensure that their depositors do not lose their confidence on the bank which may lead to bankruptcy (Saunders and Marcia, 2004). The following ratios are calculated to evaluate the capital adequacy of RBS (Refer to Appendix 1 for the calculation of ratios) (Bhayani, 2006)
Capital Adequacy Ratio (CAR)
The ratio helps RBS in identifying the reasonable level of loss that it can absorb due to the operational loses. It also examines its capacity to meet the losses (FDIC, 2007: Prasuna, 2003).
From the above figure it is evident that the CAR of RBS has been fluctuating over the years. The highest CAR has been 15% (in 2008 and 2012). The capital resources of RBS comprise Tier 1 and Tier 2. Thus, it can be inferred that 15% of capital (Tiers) of RBS is needed for protecting its risk weighted assets in 2012 ( Hilbers, Krueger and Moretti, 2000).
Debt Equity Ratio
The debt equity ratio identifies the degree of leverage of RBS. The ratio helps in identifying how much cash is financed through debt and equity (Black, 2004).
Debt ratio = Total liabilities/ Shareholder’s equity
The table below highlights the debt equity ratio of RBS:
From the above figure it can analysed that the debt equity ratio of the bank has decreased over the years from 2008 to 2012. It can be noticed that RBS has been aggressive in 2008 regarding financing. However, the decrease in the debt equity ratio reflects the fact that RBS has become more conservative in financing its capital through debt (Grier, 2007).
Asset quality
The asset quality is a vital factor for gauging the strength of a bank (Pastory and Mutaju, 2013). The main aim is to ensure the component of non-performing asset as percentage of total asset (Refer to Appendix 2 for the calculation of ratios).
Net Non performing asset (NNPA) to Total Assets
The ratio gauges the efficiency of the bank for assessing its credit risk and debt recovery (Wagner and Knaup, 2008). NNPA refers to the loans that are about to become default once the borrower fails to make the interest payment (Godlewski, 2003).


Global Banking Operations and Strategy

Type: Report
Domain: Banking
Words: 1500
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