Predicting Bank Insolvency in the Middle East and North Africa

This paper uses a panel of annual observations for 198 banks in 19 Middle East and North Africa countries over 2001-12 to develop an early warning system for forecasting bank insolvency based on a multivariate logistic regression framework. The res...

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Bibliographic Details
Main Author:	Calice, Pietro
Format:	Policy Research Working Paper
Language:	English en_US
Published:	World Bank Group, Washington, DC 2014
Subjects:	ACCOUNTABILITY ACCOUNTING ASSET PORTFOLIO ASSET RATIO ASSETS RATIO BALANCE OF PAYMENTS BALANCE SHEET BALANCE SHEETS BALANCE-SHEET BALANCE-SHEET INSOLVENCY BANK ASSET BANK ASSET QUALITY BANK CAPITALIZATION BANK EARNINGS BANK FAILURE BANK FAILURES BANK FOR INTERNATIONAL SETTLEMENTS BANK HOLDING BANK HOLDING COMPANIES BANK INSOLVENCY BANK LIQUIDITY BANK MANAGEMENT BANK OF ENGLAND BANK PROFITS BANK REGULATION BANK RISK BANK RUN BANK SUPERVISION BANKING ASSETS BANKING CRISES BANKING MARKET BANKING MARKETS BANKING SECTOR BANKING SUPERVISION BANKING SYSTEM BANKING SYSTEM DISTRESS BANKING SYSTEMS BANKRUPTCY BANKS BUSINESS CYCLE CAPITAL ADEQUACY CAPITAL BASE CAR CERTIFICATES OF DEPOSITS CHECKS COMMERCIAL BANK COMMERCIAL BANKS CONSOLIDATION CONTAGION COOPERATIVE BANKS CORPORATE GOVERNANCE CORRUPTION CREDIT DEFAULT CREDIT DEFAULT SWAPS CREDIT RISK DEBT DEFAULT RISK DEFAULTS DEPENDENT DEPOSIT DEPOSIT INSURANCE DEPOSITORS DEPOSITS DEREGULATION DEVELOPING COUNTRIES DIVERSIFICATION DOMESTIC CURRENCY DUMMY VARIABLE EARLY WARNING SYSTEM EARLY WARNING SYSTEMS EARNING ASSETS ECONOMIC POLICY EQUALITY EQUITY CAPITAL EQUITY RATIO ESTATE EUROPEAN CENTRAL BANK EXCHANGE RATE FEDERAL RESERVE FEDERAL RESERVE BANK FEDERAL RESERVE BANK OF NEW YORK FINANCIAL ACCESS FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL DEEPENING FINANCIAL DEVELOPMENT FINANCIAL INDICATORS FINANCIAL INFORMATION FINANCIAL INSTITUTIONS FINANCIAL INTERMEDIATION FINANCIAL POLICY FINANCIAL REPORTING FINANCIAL RISK FINANCIAL SECTOR REGULATION FINANCIAL SERVICES FINANCIAL STABILITY FINANCIAL SYSTEMS GOVERNANCE STRUCTURES GOVERNMENT OWNERSHIP INCOME STATEMENTS INDIVIDUAL BANK INDIVIDUAL BANKS INFLATION INSOLVENCIES INSOLVENCY EPISODES INSOLVENCY RISK INSOLVENT INSOLVENT BANKS INSTITUTIONAL ENVIRONMENT INTEREST INCOME INTEREST RATES INTERNATIONAL BANK ISLAMIC BANKS LARGE BANKS LEVERAGE LIABILITY LIABILITY SIDE LIQUID ASSETS LIQUIDATION LIQUIDITY POSITION LIQUIDITY PROBLEMS LIQUIDITY RATIOS LIQUIDITY RISK LOAN LOAN CLASSIFICATION LOAN LOSS LOAN LOSS PROVISIONING LOAN LOSS PROVISIONS LOAN PORTFOLIO MACROECONOMIC ENVIRONMENT MACROECONOMIC VARIABLES MARKET CONCENTRATION MARKET DISCIPLINE MARKET PARTICIPANTS MARKET SHARE MARKET STRUCTURE MONETARY FUND MORTGAGE MORTGAGE BANKS NEGATIVE SHOCKS NONPERFORMING LOANS NPL OPERATING COSTS OPERATIONAL RISK OWNERSHIP STRUCTURE PENDING INSOLVENCY POLITICAL STABILITY PREDICTIONS PRIVATE BANKS PROBABILITY OF INSOLVENCY PROFITABILITY PRUDENTIAL REQUIREMENTS PUBLIC DISCLOSURE RATING SYSTEM REAL ESTATE RECAPITALIZATION RECEIVER RECEIVERSHIP REGULATORY FRAMEWORK RESERVE BANK RESERVES RETURN RETURN ON ASSETS RISK EXPOSURES RISK OF INSOLVENCY RISK TAKING RULE OF LAW SAVINGS SAVINGS BANKS SENSITIVITY ANALYSIS SEPARATION OF OWNERSHIP SHAREHOLDERS SMALL BANKS SOLVENCY PROBLEMS SOLVENT INSTITUTIONS STOCK EXCHANGES STOCK MARKET SYSTEMIC BANKING DISTRESS SYSTEMIC RISK TRANSITION ECONOMIES UNION VULNERABILITY WHOLESALE BANK
Online Access:	http://documents.worldbank.org/curated/en/2014/07/19875103/predicting-bank-insolvency-middle-east-north-africa http://hdl.handle.net/10986/19356

Description
Summary:	This paper uses a panel of annual observations for 198 banks in 19 Middle East and North Africa countries over 2001-12 to develop an early warning system for forecasting bank insolvency based on a multivariate logistic regression framework. The results show that the traditional CAMEL indicators are significant predictors of bank insolvency in the region. The predictive power of the model, both in-sample and out-of-sample, is reasonably good, as measured by the receiver operating characteristic curve. The findings of the paper suggest that banking supervision in the Middle East and North Africa could be strengthened by introducing a fundamentals-based, off-site monitoring system to assess the soundness of financial institutions.

Predicting Bank Insolvency in the Middle East and North Africa

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