Examining the effect of CAMELS model components on banks' financial performance: An application in banks operating in Turkey

Banks, which constitute the cornerstones of a country's financial system, play a critical role in the healthy functioning of the economy. Negativities that may be experienced in the banking sector can lead to serious problems not only in the financial system but also in the country's economy. For this reason, increasing competition, risks and potential crises with globalization and liberalization processes have made the supervision and performance measurement of the banking sector even more necessary. Regular performance analyses of banks are of great importance for the sustainability of both individual institutions and the financial system in general. In this context, the research focuses on two main objectives. The first main objective of the research is to analyze the 10-year performances of commercial and participation banks operating in the Turkish banking sector between 2014 and 2023 with the CAMELS model in a comparative manner based on individual and group basis, capital structure and scale size. The second main objective is to reveal the effects of the components that make up the CAMELS model on the financial performance of the banks included in the analysis. For this purpose, the scores of the CAMELS model were obtained in the first stage. In the second stage, two different regression models were established. In these models, ROA (Return on Assets) and ROE (Return on Equity) ratios were used as dependent variables, and capital adequacy (C), asset quality (A), management quality (M), profitability (E), liquidity (L) and sensitivity (S) ratios were used as independent variables. The obtained panel data were analyzed using the STATA 12 package program. As a result of the analyses, it was observed that commercial banks had better performance in terms of capital adequacy and asset quality, while participation banks had better performance in terms of liquidity and sensitivity to market risk. In terms of profitability and management quality, it was determined that both bank groups were in good shape. In terms of capital structure, foreign-capital bank groups had better financial performance than state-capital bank groups and private-capital bank groups, and in terms of asset size, the small-scale bank (SMB) group had a higher CAMELS value than the large-scale bank (BMB) group. In the panel data regression analysis results, it was determined that there was a significant relationship between return on assets (ROA) and capital adequacy, profitability and sensitivity to market risk components, but there was no significant relationship between asset quality, management quality and liquidity components. It was determined that there was a significant relationship between return on equity (ROE) and capital adequacy, profitability and liquidity components, but there was no significant relationship between asset quality, management quality and sensitivity components.