Measuring financial distress of non-bank financial institutions of Bangladesh using Altman’s Z-Score model

  • Mohammad Rifat Rahman Department of Banking & Insurance, Faculty of Business Administration, University of Chittagong, Bangladesh
  • Md. Mufidur Rahman Department of Banking & Insurance, Faculty of Business Administration, University of Chittagong, Bangladesh
  • Athkia Subat Department of Banking & Insurance, Faculty of Business Administration, University of Chittagong, Bangladesh
Keywords: Altman Z-score, NBFI, financial distress, Dhaka stock exchange, working capital, total assets, EBIT, retained earnings

Abstract

Non-bank financial institutions (NBFIs) are recognized as the fundamental of a financial market as they complement the banking institutions. Since 1981, NBFIs have been playing a vital role in the economic growth of Bangladesh. Unfortunately, in the recent years most of the NBFIs have been found financially distressed. However, few NBFIs that were included in our sample claimed themselves as potential companies with sound financial performance though it was highly criticized. Therefore, the motivation for conducting this study is to examine the financial soundness of selected NBFIs using Altman’s Z score (1995). This study involved 20 NBFIs out of 23 Dhaka Stock Exchange (DSE) listed institutions, which were selected based on information availability by considering A, B and Z categories from 2014 to 2018 period. The secondary data were collected from the annual reports of the selected companies over the period. The findings are as follows: 95% of the 20 NBFIs were in distress zone during the study period and only 5% NBFIs were in safe zone during 2017-2018 period. Therefore, the analysis predicted that within the upcoming years a few of the NBFIs will be approaching bankruptcy. Finally, it is suggested that the government, respective regulatory authority, and policy makers to pay an immediate attention on mitigating the factors affecting the financial distress.

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Published
2020-08-21
How to Cite
Rahman, M. R., Rahman, M. M., & Subat, A. (2020). Measuring financial distress of non-bank financial institutions of Bangladesh using Altman’s Z-Score model. International Business Education Journal, 13, 15-28. https://doi.org/10.37134/ibej.vol13.sp.2.2020