The Bangladesh Bank has discontinued the CAMELS rating system for banks, replacing it with a forward-looking Composite Risk Rating (CRR) framework under its new Risk-Based Supervision (RBS) architecture.

The BB made the decision on June 18, saying the system is effective from January 2026.

The central bank said that CRR would become the sole official supervisory rating for all scheduled banks, replacing CAMELS, which assessed banks on Capital Adequacy, Asset Quality, Management, Earnings, Liquidity and Sensitivity to Market Risk.

According to an internal Bangladesh Bank decision, the new framework will evaluate banks’ inherent risks, the quality of risk management, governance and financial resilience, allowing supervisors to identify future vulnerabilities instead of relying mainly on historical financial indicators.

Bangladesh Bank also cited similar transitions by the central banks of Pakistan, India, the Philippines, Malaysia, Thailand and Singapore to justify the move.

Although the new framework is considered more comprehensive and forward-looking, banking analysts say its success will depend less on its design than on Bangladesh Bank’s willingness to enforce it impartially.

CAMELS lost credibility as many banks continued reporting favourable supervisory indicators despite concealing bad loans, under-provisioning against defaulted loans and maintaining capital shortfalls.

Bangladesh Bank, which conducted the assessments, was neither blind to these practices nor meaningfully punitive about them.

Bangladesh Bank itself repeatedly relaxed regulatory standards by allowing banks to defer provisioning and capital requirements, reschedule defaulted loans with nominal down payments and avoid meaningful penalties despite identifying serious irregularities through inspections.

Those practices enabled financially distressed banks to project healthier conditions than their actual financial position, raising persistent questions about the credibility of supervisory ratings.

The weaknesses became more evident after the interim government took office in August 2024.

BB’s own data now revealed that banks’ distressed assets reached near Tk 11 lakh crore, equivalent to 60 per cent of total loans by December 2025, far above the officially reported non-performing loan ratio at the time.

Bangladesh Bank’s subsequent adoption of Basel III classification standards also sharply increased the reported default loan ratio, exposing the extent of previously hidden banking sector stress.

The new framework, however, also introduces fresh concerns.

Where CAMELS looked backward at financial indicators, CRR is intended to assess inherent risks — credit, market, and operational — alongside the quality of a bank’s risk management systems and its capacity to absorb future shocks.

It consolidates supervisory assessment into a single, forward-looking judgment rather than six parallel scores that could be managed independently.

The concern is not with the design. It is with the operating environment. CRR determination under the new framework has been assigned to individual Bank Supervision Departments, each responsible for rating the banks under their jurisdiction.

The subjective element in forward-looking risk assessment is, by definition, larger than in backward-looking financial measurement.

They argue that no supervisory framework can produce credible ratings if regulatory forbearance, selective enforcement and institutional tolerance of banking irregularities continue.

Future risk projections can be shaped by assumptions. They can be influenced. The same institutional culture that allowed CAMELS to become a credibility problem does not dissolve because the instrument changes, financial experts said.