Measuring Financial Soundness Using Z-Score: A Research on Deposit Banks in Türkiye

Abstract

The aim of this study is to measure the financial soundness of deposit banks operating in Türkiye in the 2018-2022 period using the Z-score, and then to determine whether there is a statistically significant difference between the financial ratios of deposit banks with high and low Z-scores. The financial ratios used are obtained from the report titled “Selected Ratios of the Banking System in Türkiye 2012-2022” published annually by the Banks Association of Türkiye based on the CAMELS Rating System components within the existent literature. Mann Whitney U-Test was used to test whether there is a statistically significant difference between the financial ratios of deposit banks with high and low Z-scores. The results of the analysis indicated that banks with high Z-scores generally have higher capital adequacy, asset quality, management quality, profitability, and liquidity. Moreover, in line with the results of the analyses, it is possible to state that Z-scores can be considered as an important criterion for evaluating the financial soundness of deposit banks in Türkiye.