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Effects of Civil Wars on the Financial Soundness of Banks: Evidence from Sudan Using Altman’s Models and Stress Testing

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  • Mudathir Abuelgasim

    (Financial Management Department, College of Business Administration, Majmaah University, Al-Majmaah 11952, Saudi Arabia)

  • Said Toumi

    (Department of Business Administration, College of Business Administration, Majmaah University, Al-Majmaah 11952, Saudi Arabia)

Abstract

This study assesses the financial soundness of Sudanese commercial banks during escalating civil conflict by integrating Altman’s Z-score models with scenario-based stress testing. Using audited financial data from 2016 to 2022 (pre-war) and projections through to 2028, the analysis evaluates resilience under low- and high-intensity conflict scenarios. Altman’s Model 3 (for non-industrial firms) and Model 4 (for emerging markets) are applied to capture liquidity, retained earnings, profitability, and leverage dynamics. The findings reveal relative stability between 2017–2020 and in 2022, contrasted by significant vulnerability in 2016 and 2021 due to macroeconomic deterioration, sanctions, and political instability. Liquidity emerged as the most critical driver of Z-score performance, followed by earnings retention and profitability, while leverage showed a context-specific positive effect under Sudan’s Islamic finance framework. Stress testing indicates that even under low-intensity conflict, rising liquidity risk, capital erosion, and credit risk threaten sectoral stability by 2025. High-intensity conflict projections suggest systemic collapse by 2028, characterized by unsustainable liquidity depletion, near-zero capital adequacy, and widespread defaults. The results demonstrate a direct relationship between conflict duration and systemic fragility, affirming the predictive value of Altman’s models when combined with stress testing. Policy implications include the urgent need for enhanced risk-based supervision, Basel II/III implementation, crisis reserves, contingency planning, and coordinated regulatory interventions to safeguard the stability of the banking sector in fragile states.

Suggested Citation

  • Mudathir Abuelgasim & Said Toumi, 2025. "Effects of Civil Wars on the Financial Soundness of Banks: Evidence from Sudan Using Altman’s Models and Stress Testing," JRFM, MDPI, vol. 18(9), pages 1-27, August.
    • Handle: RePEc:gam:jjrfmx:v:18:y:2025:i:9:p:476-:d:1733193
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    References listed on IDEAS

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    1. Pagratis, Spyros & Topaloglou, Nikolas & Tsionas, Mike, 2017. "System stress testing of bank liquidity risk," Journal of International Money and Finance, Elsevier, vol. 73(PA), pages 22-40.
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