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Identifying Financial Distress Indicators of Selected Banks in Asia

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  • Shahidur Rahman
  • Lian Hwa Tan
  • Ooi Lyn Hew
  • Yih San Tan
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    Abstract

    The banking sector plays a pivotal role in the economic development of most Asian countries. In 1997, a full-fledged banking and financial crisis took place in South Asian countries. Many banks had to be bailed out by their governments. It is believed that an examination of indicators that led to the problems suffered by banks in this region will be of enormous benefit. Models were developed for each country that identified banks experiencing financial distress as a function of financial ratios. The countries in the study include Indonesia, South Korea and Thailand. The banking sectors of these three countries are ideal for this study, as the banks enjoyed profitability during the pre-crisis period and were the most severely affected by the financial crisis in 1997. Logistic regression was used to analyze the data sample from 1995 to 1997. In the findings, capital adequacy, loan management and operating efficiency are three common performance dimensions found to be able to identify problem banks in all three countries. It is hoped that the financial ratios and results of the models will be useful to bankers and regulators in identifying problem banks in Asia. Copyright 2004 East Asian Economic Association..

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    Bibliographic Info

    Article provided by East Asian Economic Association in its journal Asian Economic Journal.

    Volume (Year): 18 (2004)
    Issue (Month): 1 (03)
    Pages: 45-57

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    Handle: RePEc:bla:asiaec:v:18:y:2004:i:1:p:45-57

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    Cited by:
    1. Mete Feridun, 2006. "Currency Crises in Emerging Markets: An Application of Signals Approach to Turkey," Discussion Paper Series 2006_26, Department of Economics, Loughborough University, revised Dec 2006.
    2. María José Gil-Moltó & Joanna Poyago-Theotoky & Vasileios Zikos, 2006. "R&D policy and privatization in a mixed oligopoly," Discussion Paper Series 2006_25, Department of Economics, Loughborough University.
    3. Maghyereh, Aktham I. & Awartani, Basel, 2014. "Bank distress prediction: Empirical evidence from the Gulf Cooperation Council countries," Research in International Business and Finance, Elsevier, Elsevier, vol. 30(C), pages 126-147.
    4. Espenlaub, Susanne & Khurshed, Arif & Sitthipongpanich, Thitima, 2012. "Bank connections, corporate investment and crisis," Journal of Banking & Finance, Elsevier, vol. 36(5), pages 1336-1353.
    5. Hossain, Monzur, 2004. "Did The Asset Price Bubble Matter For Japanese Banking Crisis In The 1990s?," MPRA Paper 24738, University Library of Munich, Germany.
    6. Ali ARI, 2009. "An Early Warning Signals Approach to the Currency Crises: The Turkish Case," 2009 Meeting Papers, Society for Economic Dynamics 1045, Society for Economic Dynamics.

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