International Journal For Multidisciplinary Research

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The Possibility of Financial Distress and Its Determinants: Evidence from the Banking Sector of Bangladesh

Author(s) Sirajum Munira Chowdhury Otosi, Sidratul Muntaha
Country Bangladesh
Abstract The banking sector of Bangladesh has shown poor performance for over a decade now. The non-performing loans increased over the years. This prompts the question of whether the banks are capable of maintaining financial stability and continue as a going concern. This is further fueled by the number of financial scandals which took place over the years, such as the Hallmark scandal, irregularities in Islami Bank Bangladesh Ltd., BASIC Bank Limited etc. that further highlights the signs of possible financial distress. These incidents call for an investigation of bank-specific determinants that might have a significant effect in leading a bank towards bankruptcy. This study has used the data of 30 listed commercial banks in Bangladesh, from the year 2014 to 2020. The bankruptcy risk is measured using the Altman Z-score, which has been extensively used as a suitable bankruptcy risk measurement tool. Statistical analysis has been conducted, using random-effects regression model and correlation, to test the relationship and impact of bank-specific factors. Capital adequacy ratio has shown significantly positive impact on the bankruptcy risk, while age has shown significantly negative impact on bankruptcy risk. Non-performing loan has also shown negative relationship with Z-score, which is contrary to the conventional belief.
Keywords Capital Adequacy ratio, Altman Z-score, Bank-specific determinants, Bankruptcy risk
Field Business Administration
Published In Volume 6, Issue 6, November-December 2024
Published On 2024-11-09
Cite This The Possibility of Financial Distress and Its Determinants: Evidence from the Banking Sector of Bangladesh - Sirajum Munira Chowdhury Otosi, Sidratul Muntaha - IJFMR Volume 6, Issue 6, November-December 2024. DOI 10.36948/ijfmr.2024.v06i06.27279
DOI https://doi.org/10.36948/ijfmr.2024.v06i06.27279
Short DOI https://doi.org/g8qtnn
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