Financial failure prediction in banks: BRICS countries and Turkey

The problems that arise in banks, which are one of the most important components of the financial system, are of critical importance as they are not limited to the sector and carry the risk of completely affecting the economies of the countries. By predicting bank failures, in the event of a possible failure, the entire economy can be prevented from being adversely affected, thus minimizing the costs to be incurred. The importance of this issue has increased after the increasing banking crises in the globalizing world and the recent global financial crisis. The main purpose of this study is to comparatively reveal the reasons for bank failures in BRICS countries and Turkey, which have a significant share in global markets. Accordingly, the annual financial data of listed banks during 2002-2019, as well as the effects of various independent variables belonging to the sector and macroeconomic environment in which banks operate, were investigated. As the dependent variable, eight different models were established in order to obtain more comprehensive and generalizable results. In the study, primarily, by considering the relationship between the financial ratios obtained from the bank balance sheets, grouping was made through factor analysis. In the next phase, the effects of factors and external variables were examined by panel logit regression analysis. Finally, the accurate prediction rates of the successful and failed banks of the analyzes were tested. The results obtained in the study showed that the model based on the ratings of the credit rating agencies provided the highest success rate in general. This is followed by the model that explains bank failures with the high loan-to deposit ratio. When the results of the models in which countries are tackled one by one are examined, it is observed that the factors related to profitability and capital have a negative effect on the probability of financial failure, while the positive effects of non-performing loans are observed. However, different results obtained from country groups show that countries have unique structures, risks, and authority decisions differ. Besides, when the whole sample is analyzed together, the results on profitability, capital structure and risky assets are in line with country-based reviews. The results also reveal that GDP growth has significantly reduced banking issues and that South African and Chinese banks were the most affected by the global financial crisis.