3.3 Application of rating system CAMEL for assessment of financial state of Ukrainian banks

The most widely used approach of banks financial state analysis and bankruptcy risk forecasting is based on the application of rating systems. The determination of bank rating is one of the methods that enables to obtain complex financial assessment of bank financial state and compare them. There are various private and official banks rating systems. The most known of them are systems developed by world leaders in this sphere-rating companies Fitch, Standard & Poor's, Moody's, etc. Officially recognized banks rating system that is widely used in the world is system CAMELS. It's American rating system was developed and implemented by Federal reserve System (FRS) and Federal Deposit Insurance Corporation (FDIC) in 1978 [1].

Supervision over banks activity based on risk estimation by system CAMELS lies in determination of general bank state using the common criteria that defines all aspects and spheres of bank activity. This system is also widely used in Ukraine by National Bank of Ukraine (NBU) according to developed "Statement of order of rating estimates determination by rating system 'CAMELS'."

Rating system CAMELS allows NBU to estimate general financial state and stability of banking system of Ukraine. Such assessment enables to obtain information for priority determination in banking supervision activity and necessary materials and financial resources for performing adequate control over banking system.

At the same time, system CAMELS envisages the detail supervision and analysis of bank state. Such analysis may be performed only while complex inspecting checking of bank activity, which enables to determine how the top managers analyze and control bank risks.

The base of rating system, CAMELS, is risk assessment and determination of rating estimates by each component of the system: capital adequacy, assets quality, management, liquidity, and sensitivity.

Due to rating system, each bank obtain digital rating by all six components, and integral (complex) rating estimate is determined on the base of rating estimates of all components. Components of rating system are estimated by 5 balls scale in which estimate 1 is the highest, and estimate 5 is the lowest one. Integral estimate is also determined by 5 balls scale. Banks that obtained integral rating estimate 1 or 2 are considered reliable by all the factors capable to overcome economic depression and its management believed to be qualified.

Banks that got integral estimate 3 have substantial drawbacks, which may lead to serious problems with liquidity and solvency if these drawbacks won't be corrected
