The Validity of Altman’s Models in Predicting Iraqi Private-Banks Soundness

Abstract

Nowadays, banks play a significant role in the economy. Thus, its fail extends beyond stakeholders, companies and organization. But may reach to threaten the entire economy. Such an institution better to depend on an early warning system to prevent the costly fail of it. Financial distress prediction (FDP) refers to a method of utilizing statistical models to predict business failure or difficulties that may face banks. A famous earlier model suggested by Altman in which use by the current study to assess the soundness of Iraqi private banks and to find out if such a model could be appropriate to predict financial failure. The model applied to two groups of Iraqi private banks. The first group involves already failure banks; in contrast, the second group comprises Non-failure banks. The study finds that the Altman model unable to predict financial distress in Iraqi private bank with worthwhile accuracy. Therefore, it is inapplicable as applied in other business environments.