Title: The use of accounting data to predict bank financial distress in MENA countries

Authors: Isabelle Distinguin, Iftekhar Hasan, Amine Tarazi

Addresses: Universite de Limoges, LAPE, 5 rue Felix Eboue, Limoges, 87031, France. ' Rensselaer Polytechnic Institute (RPI) and Bank of Finland, 110, 8th Street Troy, NY 12180, USA. ' Universite de Limoges, LAPE, 5 rue Felix Eboue, Limoges, 87031, France

Abstract: Using an innovative approach of following the downgrade or credit rating decisions by rating agencies, this paper develops an early-warning system of bank financial distress and critically evaluates the reliability and stability of the potential indicators or factors of banks in 13 emerging economies in the MENA region. Evidence portrays that the capital, asset quality, earnings, and liquidity ratios are accurate accounting indicators to predict bank financial distress. However, we observe that influence of factors vary across size of the banks as accounting information does not appear reliable to predict bank financial distress of small banks. By contrast, the balance sheet structure of banks (both the asset side and liability side) does not affect the accuracy of accounting indicators.

Keywords: credit ratings; bank financial distress; banking risk; MENA countries; accounting data; emerging economies; capital ratio; asset quality ratio; earnings ratio; liquidity ratio; bank size; balance sheets.

DOI: 10.1504/IJBAAF.2010.037154

International Journal of Banking, Accounting and Finance, 2010 Vol.2 No.4, pp.332 - 356

Received: 22 Jan 2010
Accepted: 19 Jul 2010
Published online: 29 Nov 2010 *

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