The Influence of CAMEL Ratios on Credit Rating Evaluation in Tanzanian Commercial Banks: An Empirical Analysis

Abstract

the international credit rating evaluation systems are used by global agencies to grade their lenders which can be non-financial or financial institutions. Also, international credit ratings are considerably platforms of evidence of private information possessed by banks. Credit rating evaluation to entities such as commercial banks, it is still under infant stage in Tanzania and other developing countries. This research paper examined the influence of CAMEL ratios on credit rating evaluation of Tanzanian Commercial Banks. The research opted time series research design in capturing the variables, quarterly data from 2009-2019 was estracted from banks’ financial reports. In evaluating the commercial banks’ credit rating, the study’s sample sizes were 40 observations from CRDB and NMB commercial banks. The results indicated that, the influence of CAMEL ratios on credit rating of Tanzania Commercial Banks are likely to undergo significantly from capital adequacy, management quality, earning capability and liquidity. The study additional findings showed that, Tanzanian regulatory system (locally) considerers less indicators in credit rating evaluation with inferior standards as compared to international standards. CRDB and NMB banks combine had satisfactory view rating scores that signified basically accuracy with modest amendable limitation (rating average of ‘2’), nevertheless NMB appeared to be better in ratings than CRDB in the period of 10-years examined quarterly (insert statistical P-Values). The study suggests that local systems ensure the establishment of credit rating evaluation guidelines to reflect international standards to effect the credit rating evaluation of local firms. In order to meet international rating standards for local commercial banks, the international credit rating standards are crucial to be adopted.