A Systematic Review of Bank Health Assessment: Comparative Analysis of CAMEL and RGEC Methodologies

Abstract

Bank health assessment is a vital aspect of financial research, providing information on the financial performance and stability of banking institutions. This systematic literature review focuses on comparing two methods of bank health assessment: CAMEL and RGEC. In a dynamic financial environment with ever-changing regulations, understanding the effectiveness of these two assessment tools is crucial. Although many studies have discussed these methods at both macro and micro levels, systematic literature review studies comparing the two are still very limited. This research aims to fill this gap by conducting a critical review of the literature to integrate insights and identify bank health assessment patterns from both approaches. The primary objective of this study is to evaluate and compare the effectiveness of CAMEL and RGEC in assessing bank health. Using a systematic approach, this methodology encompasses a large body of relevant literature through a comprehensive review. The main findings provide an overview of the strengths and weaknesses of each methodology, offering valuable information for researchers, practitioners, and financial actors. The novelty of this research lies in the comprehensive SLR approach in comparing the effectiveness of bank health assessments using the CAMEL (Capital Adequacy, Asset Quality, Management Quality, Earnings Quality, and Liquidity) and RGEC (Risk Profile, Good Corporate Governance, Earnings Quality, and Capital Adequacy) methods. Although many studies have separately discussed these methods, there has not yet been an SLR study that directly compares the two. This research is important for practitioners, regulators, and future research directions, contributing to the discourse on improving and refining bank health assessment methodologies. In addition to its academic relevance, this review has practical implications for financial institutions and governments, contributing to more stable and accurate assessments of bank conditions in a dynamic financial environment. The implications of this research are not limited to the academic world but also provide valuable information for practitioners and policymakers.