Bangladesh Bank is discontinuing the CAMELS rating system used to assess the financial health and capacity of the country’s banks. The decision took effect formally from January this year. A Composite Risk Rating (CRR) system has now been introduced to assess banks’ overall risk and management. The new system is part of Bangladesh Bank’s Risk-Based Supervision (RBS) framework, according to sources at the central bank.
Until now, banks were rated under CAMELS on six indicators — capital adequacy, asset quality, management, earnings, liquidity and sensitivity to market risk — based on a bank’s past and present financial position. The method was one of the main yardsticks for assessing a bank’s overall financial health.
Under CAMELS, banks were given scores from one to five, where one meant the best and five the weakest or riskiest bank. The rating was kept entirely secret, disclosed only to the chief executive of the bank concerned.
Bangladesh Bank officials say the biggest limitation of CAMELS was that it was essentially a backward-looking assessment. That is, ratings were determined on the basis of what kind of business a bank had done over the past three or six months and the state of its financial reports, so the risk of a bank running into a future crisis would not be caught early in the rating.
The Composite Risk Rating (CRR) introduced in its place will be a forward-looking assessment. It will not only assess a bank’s current financial position but also assess in advance the kinds of risk it could face in future and whether it has the financial capacity to cope.
Bangladesh Bank’s internal documents say that running CAMELS and other parallel rating systems together led to duplication of work, wasted supervisors’ time and risked discrepancies between the two methods’ results. The decision to scrap CAMELS was therefore taken to make the whole supervisory process more integrated and effective.
According to Bangladesh Bank sources, a major administrative reorganisation has also been carried out within the central bank to implement the new supervisory system. Supervision and complaint-related activities have been rearranged, with 17 new bank supervision departments formed and the previous structure changed.
The internal documents also say the decision was taken in light of international experience. Central banks in various countries — such as the Reserve Bank of India, the State Bank of Pakistan and the central banks of the Philippines, Malaysia and Singapore — have already introduced forward-looking, risk-based rating systems in place of CAMELS.
Those involved say the new CRR system will make it possible to identify potential risks before a major crisis develops at a bank, acting as an early-warning signal for the central bank, making supervision more effective and helping maintain financial-sector stability.
Although the new framework appears forward-looking, banking analysts say its success will depend more on Bangladesh Bank’s willingness to enforce the law impartially than on the framework’s design.
CAMELS had largely lost its credibility, because many banks showed artificially good results on the supervisory indicators even while hiding defaulted loans, failing to keep the required provisions against bad loans and running capital shortfalls. Bangladesh Bank, which carried out the CAMELS assessments, stayed silent despite knowing of such manipulation, and took no meaningful punitive action over it.
Bangladesh Bank itself repeatedly relaxed the conditions for provisioning and capital maintenance for banks. It had been granting policy concessions — allowing defaulted loans to be rescheduled on token down payments and imposing no major penalties even after serious irregularities were found in inspections. Such concessions allowed even financially distressed banks to portray themselves as far healthier than they really were, constantly raising questions about the credibility of the supervisory ratings.
These weaknesses came into sharper focus after the interim government took office in August 2024. Bangladesh Bank’s own data showed that by December 2025 the banks’ risky loans had reached about Tk 11 lakh crore — equal to 60 percent of total loans.
বাংলায় মূল প্রতিবেদন পড়ুন · Read the original Bengali report