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Measurement and Comparison of the Financial Soundness of Conventional and Islamic Commercial Banks in Bangladesh using the Altman’s Z Score Model

Author

Listed:
  • Shohel Rana

    (Associate Professor, Dept. of Finance and Banking, Jatiya Kabi Kazi Nazrul Islam University, Trishal, Mymensingh, Bangladesh & PhD Fellow, Department of Finance, University of Rajshahi, Rajshahi, Bangladesh.)

  • Professor Dr. A.S.M. Kamruzzaman

    (Dept. of Finance, University of Rajshahi, Rajshahi, Bangladesh.)

Abstract

The prime objective of the paper is to measure and compare the financial soundness of conventional and Islamic commercial banks in Bangladesh and to suggest ways to improve the financial status of both categories of banks. Altman’s z-Score model is used to measure and predict the financial soundness of selected banks while an independent sample t-test is also used to measure the gap in financial soundness between conventional and Islamic commercial banks. This study uses secondary data and covers ten years study period of 2010-2019. The major finding of the study is that all conventional and Islamic commercial banks are in safe zone during the study period. Only First security Islamic bank ltd. was in the gray zone in 2010 but successfully recovered in the later period. This study also finds that conventional commercial banks are better in terms of financial health than Islamic commercial banks but this difference in financial soundness is not statistically significant.

Suggested Citation

  • Shohel Rana & Professor Dr. A.S.M. Kamruzzaman, 2021. "Measurement and Comparison of the Financial Soundness of Conventional and Islamic Commercial Banks in Bangladesh using the Altman’s Z Score Model," International Journal of Science and Business, IJSAB International, vol. 5(12), pages 52-62.
    • Handle: RePEc:aif:journl:v:5:y:2021:i:12:p:52-62
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    References listed on IDEAS

    as
    1. Edward I. Altman, 1968. "Financial Ratios, Discriminant Analysis And The Prediction Of Corporate Bankruptcy," Journal of Finance, American Finance Association, vol. 23(4), pages 589-609, September.
    2. Edward I. Altman, 1968. "The Prediction Of Corporate Bankruptcy: A Discriminant Analysis," Journal of Finance, American Finance Association, vol. 23(1), pages 193-194, March.
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