CAMELS Components and Bank Financial Performance: A Multi-Country Panel Analysis of Middle Eastern Banks

Abstract

This study examines the relationship between the six CAMELS components and the financial performance of Middle Eastern banks during 2020–2024. Bank financial performance is assessed using return on equity (ROE), return on assets (ROA), return on deposits (ROD), and profit margin (PM). The analysis uses an unbalanced panel dataset comprising 246 bank-year observations from 50 banks across ten Middle Eastern countries. The results show that earnings have a positive and statistically significant relationship with all four measures of financial performance. Capital adequacy is also positive and significant in the ROA, ROD, and PM models, but not in the ROE model. Asset quality has a significant negative relationship only with PM, while management efficiency has a significant positive relationship only with ROA. Liquidity and sensitivity to market risk are not statistically significant at the 5% level in any of the four models. The findings indicate that the importance of individual CAMELS components varies depending on the financial performance measure used. By examining all six CAMELS components across four performance indicators within a multi-country panel framework, the study provides further evidence on CAMELS-based bank performance assessment in Middle Eastern banking systems. The results reflect statistical associations within banks over time and should not be interpreted as causal effects. The scientific originality of this study lies in its comprehensive examination of all CAMELS components across multiple financial performance indicators within Middle Eastern banking systems, providing new empirical evidence on the differential role of each component in explaining bank performance.