Financial ratios as a measure of bank failure probabilities: A study on the rural banks in the Philippines using the logistic regression from the period 2003-2006

Date of Publication

2009

Document Type

Bachelor's Thesis

Degree Name

Bachelor of Science in Commerce Major in Management of Financial Institutions

College

Ramon V. Del Rosario College of Business

Department/Unit

Financial Management

Thesis Adviser

Alfredo M. Santoyo

Defense Panel Chair

Edralin C. Lim

Defense Panel Member

Andrew Andrian Yu Pua
Don Malabanan

Abstract/Summary

Considerable amounts of study have been devoted to bankruptcy prediction which includes the studies of Beaver, Altman, and other researchers in the field of accounting and finance. It has been a great challenge for those who are engaged in the said study to determine the cause of bankruptcy and ways on how to prevent it. Equally important, the accuracy of the statistical models that will be used is also taken into account on the challenge imposed.

In the study, the researchers examined the following: (1) is Logistic Regression accurate in predicting rural bank failures in the Philippines, (2) which among the ratios has the largest weight in determining the probability of bankruptcy. The paper used financial statements of closed and non-closed rural banks in the Philippines which covered from the period 2003-2006 in examining the problem of the research. Several models were used in predicting bankruptcy of companies using financial statement ratios. Most researchers used the LOGIT and the Multiple Discriminant Analysis or the Altman Z Score in determining bankruptcies. But only Logistic Regression was used by this paper ind650 determining bankruptcy.

The researchers, using the statements-of-condition of rural banks and by means of the Logistic Regression, obtained the value that will be used in computing for the z-score of the failed banks. They found out that the following ratios affects the probability of bank failures in rural banks: 1) Dept to equity, 2) Liquid asset ratio, 3) Current ratio, 4) Total reserves to total assets, 5) Loans to deposits, 6) Loans to net worth. Furthermore, the researchers found out that the Logistic regression (Logit) was accurate in predicting rural bank failures since more than 50% of the total closed banks were predicted to be failed banks.

Abstract Format

html

Language

English

Format

Print

Accession Number

TU14842

Shelf Location

Archives, The Learning Commons, 12F, Henry Sy Sr. Hall

Physical Description

vii, 58 leaves

Keywords

Banks and banking--Philippines; Bank failures--Philippines

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