Predicting Financial Failure using Altman’s Z-Score Model:Evidence from CommercialBanks in Pakistan

Abstract

This paper aims to explore the predictability of financial failure in commercialbanks in Pakistan using Altman Z-score Model. Predicting the early financial failure indicates the concerned parties to intervene and take appropriate corrective actions before the bank finally fails. To achieve these objectives, the Altman Z-score model and current ratio tests are applied to the commercialbanks in Pakistan based on their financial statements and the analysis of the financial ratios during the period from 2016 to 2021. Theresults of the study show that Altman’s Z-Score model and current ratio appropriately predict the financial distress of commercialbanks in Pakistan, especially during the last two years. The results show that there isrisk of financial failure inalmost half of the commercialbanks of Pakistan.