Feasibility Examination of ‘Bankometer’ Model as an Early Warning Tool for Islamic Banks

Abstract

Prediction ability regarding the banking future is constantly exposed to financial disaster is of undeniable importance to central banks, bank management, and equity investors. When a bank goes out of money, i.e. bankrupt, creditors also lose the position of payments, whether the principal or Interest and when equity investors lose all their investments. In summation, if the bank survives after financial distress, the survival costs will still reduce the financial growth. Thus, it is essential to encompass the factors that will be vulnerable to financial distress. To avoid repeating or even the occurrence of such stuff, there must be efficient measures that are helpful in at least identifying the advanced emergence situation of financial crises to help financial institutions save themselves from the hazards of the crisis. The study develops regression models based on 'Altman Z-score criteria' to examine multi-variables' impact on a bank's solvency. The solvency of banks is reviewed, and the results are expected to suggest a comprehensive mechanism to help Islamic banks understand that their solvency depends on the management of asset liability and current ratio.