Measuring the Credit Risk of Bank Based on Z-Score And KMV- Merton Models: Evidence from Iran

محورهای موضوعی : Risk Management

Mohammad Roshandel ¹ ( PhD Student in Department of Management, Science and Research Branch, Islamic Azad University, Tehran, Iran )
Mirfeiz Fallahshams ² ( Associate Professor, Department of Business Management, Central Tehran Branch , Islamic Azad University, Tehran, Iran )
Fereydoun Rahnama Roodposhti ³ ( Science and Research Branch )
hashem nikoumaram ⁴ ( Professor of Accounting Department, Tehran Sciences and Researches Branch, Islamic Azad University, Tehran, Iran )

تاریخ دریافت : 1400/01/26 تاریخ پذیرش : 1400/10/13 تاریخ انتشار : 1402/09/10

کلید واژه: KMV-Merton, Bank, Z score, Credit Risk,

چکیده مقاله :

This paper examines the credit risk in the Iranian banks during 2008 to 2018 through the Z-score (Accounting based data) and the KMV-Merton (Market based information) models. In the Merton model, equity is equal to call option on underlying value of the bank’s asset. The market value of assets is estimated by share price. The value of assets is then compared to the value of liabilities. Therefore, default when occurs that the market value of assets is less than the book value of debts. so, value of equity becomes negative. In the Z-score model, Return on Assets and Equity to Assets as the numerator and standard deviation of ROA as the denominator are applied. If the mentioned ratios of numerator increase and the denominator decrease, the probability of default decline. As well as, Independent variables are divided into five groups: leverage, management efficiency, profitability quality, financial health, and liquidity. As a result, capital adequacy and profitability have a greater impact on both models. Also, the ANOVA table proves the validity of two models. The value of ROC test in both models is above average (0.5) which are efficient and their efficiency is 99.48% and 92.68%, respectively. Also, in terms of Voung’s test, the KMV is more efficient than the Z-score.

چکیده انگلیسی:

This paper examines the credit risk in the Iranian banks during 2008 to 2018 through the Z-score (Accounting based data) and the KMV-Merton (Market based information) models. In the Merton model, equity is equal to call option on underlying value of the bank’s asset. The market value of assets is estimated by share price. The value of assets is then compared to the value of liabilities. Therefore, default when occurs that the market value of assets is less than the book value of debts. so, value of equity becomes negative. In the Z-score model, Return on Assets and Equity to Assets as the numerator and standard deviation of ROA as the denominator are applied. If the mentioned ratios of numerator increase and the denominator decrease, the probability of default decline. As well as, Independent variables are divided into five groups: leverage, management efficiency, profitability quality, financial health, and liquidity. As a result, capital adequacy and profitability have a greater impact on both models. Also, the ANOVA table proves the validity of two models. The value of ROC test in both models is above average (0.5) which are efficient and their efficiency is 99.48% and 92.68%, respectively. Also, in terms of Voung’s test, the KMV is more efficient than the Z-score.

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