Global Banking Operations and Strategy

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Global Banking Operations and Strategy
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Abstract
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. 
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Table of Contents
Analysis of financial position of Royal Bank of Scotland by CAMELS Approach....................... 4
Capital Adequacy........................................................................................................................ 4
Capital Adequacy Ratio (CAR) .............................................................................................. 4
Debt Equity Ratio ................................................................................................................... 5
Asset quality................................................................................................................................ 6
Net Non performing asset (NNPA) to Total Assets................................................................ 6
Total investment to Total assets (TI/TA)................................................................................ 7
Management Quality................................................................................................................... 8
Total Advances to Total Deposits........................................................................................... 8
Profit per employee (PPE) ...................................................................................................... 9
Earning quality.......................................................................................................................... 10
Operating profit to average working funds........................................................................... 10
Percentage growth in net profit............................................................................................. 11
Liquidity.................................................................................................................................... 11
Liquidity assets to demand deposits ..................................................................................... 11
Liquidity assets to total deposits........................................................................................... 12
Sensitivity to market risk .......................................................................................................... 13
Reference Lists.............................................................................................................................. 14
Appendix 1- Capital Adequacy..................................................................................................... 16
Appendix 2 – Asset Quality.......................................................................................................... 16
Appendix 3 – Management quality............................................................................................... 16
Appendix 4 - Earnings quality ...................................................................................................... 17
Appendix 5 – Liquidity................................................................................................................. 17
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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).
Figure 1: Capital Adequacy Ratio
(Source: Author’s creation)
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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