A study on the financial performance of banking industry in Afghanistan: A Comparative Analysis through CAMELS rating system

This study aims to examine the financial performance of the banking sector in Afghanistan using the CAMELS rating system, a widely recognized framework for evaluating the financial health of banks between 2015-2020. The CAMELS system considers six key components: Capital Adequacy, Asset Quality, Management Quality, Earnings, Liquidity, and Sensitivity to Market Risk. By applying regression analysis, the research investigates how these components impact the overall performance of Afghan banks. The findings suggest that capital adequacy is a crucial factor influencing the profitability of banks in Afghanistan, and have the significant relationship, while asset quality, liquidity, and management practices don’t have significant relationship with the profitability. The study highlights the importance of improving capital buffers, along with effective risk management strategies, to enhance the financial stability and resilience of the banking sector in Afghanistan. Furthermore, the research provides recommendations for policymakers and banking institutions to foster a more robust financial system