Assessment of Financial Distress Conditions of Commercial Banks in Ethiopia: A Case Study of Selected Private Commercial Banks

Abstract

The current trend in Ethiopian banking industry is that it is showing progress in performance and almost all banks are reporting positive accounting profit. However, profitable companies should not be a guarantee that the companies can survive to fulfill its liabilities. This is due  to the fact that  not  all  of  profit  can  be  cashed  as  source  of  funds or be available for covering its obligations. Based on this fact, in this study attempts are made to identify the financial distress conditions and its determinants in selected private commercial banks in Ethiopia. The study first assessed the financial health conditions of the selected private commercial banks using Altman Z-score model (ZETA Analysis) and estimated determinants of financial distress using panel data starting from 2002/03 to 2011/12 and six private commercial banks in Ethiopia. Finding of the study shows that the financial health of the selected private commercial banks is good and improving from time to time, but some fluctuating trend is observed.

Keywords: Financial Distress Conditions, Altman Z-Core Model Analysis (AZMA), Private Commercial Banks