Bankruptcy Prediction of Turkish Commercial Banks Using Financial Ratios

In the last few years Turkey experienced a serious financial crisis. In the aftermath of this crisis, immediate economic effects of the crisis were felt almost in all areas of the business world, and several banks were taken over by the Savings Deposits Insurance Fund (SDIF). The main purpose of this research is to make a bankruptcy prediction of Turkish Commercial Banks using data compiled from the years 1997 and 1999. Logistic Regression was used to form a prediction model with financial ratios. 42 commercial banks were included in this research. Those which were taken over by the Savings Deposits Insurance Fund (SDIF) were determined as failed banks: 8, 3, and 7 in 1999, 2000, and 2001, respectively. Prediction models were created using 1997 – 1999 period data set and validated using 1999- 2001 data set for prediction. It was observed that 80 % of failed banks could be predicted two years a priori, and Logistic Regression can be used as a part of an “early warning ” system. As is known, predicting bank failures reduces the losses incurred and helps avoid misallocation of resources