Evaluating Bangladesh Bank's Zoning Framework using Altman's Z-Score: Evidence from Commercial Banks
AUTHORS
Sharmin Sultana,Rupali Bank PLC, Chattogram, Bangladesh
Suraiya Nazneen,Department of Finance, University of Chittagong, Chattogram, Bangladesh
Anupam Das Gupta,Department of Finance, University of Chittagong, Chattogram, Bangladesh
ABSTRACT
Bangladesh's banking sector is currently undergoing a challenging period. The Bangladesh Bank's recent categorization of banks into red, yellow, and green zones has drawn the attention of stakeholders in the banking industry and raised questions about its evaluation criteria. This study aims to evaluate the financial performance and position of commercial banks in Bangladesh using the Altman Z-score Model and to verify its validity against the recently established red, yellow, and green zone banks. 44 Commercial Bank's four years of data, from 2019 to 2022, were analyzed for this purpose. Using the Altman Z-score model to assess the validity of Bangladesh bank zoning, only one bank was identified as safe, three as in the grey zone, and the remaining 38 as in the distress zone. However, the Altman Z-score opposes all Zoning by the Bangladesh Bank, except for 7 banks from the red zone out of 44 banks. The study argues that the Altman Z-score Model doesn't support the division of banks in most cases. The study confirms that the majority of Bangladesh's commercial banks are experiencing financial difficulties, and their performance between 2019 and 2022 was quite concerning. This study demands an in-depth investigation of the Bangladesh Bank Zoning criteria and an explanation of why this Zoning differs from other alternatives, which can be addressed in future research.
KEYWORDS
Commercial banks, Altman's Z-score, Bank Zoning, Financial distress
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