Adopting a credit rating model to measure the risk of loan default - an analytical study of a sample of Iraqi banks for the period 2010-2020

Abstract

The research aims to find out whether the Altman model has the ability to predict loan default at least two years before it occurs. The financial analysis was conducted on Iraqi banks listed on the Iraq Stock Exchange and traded, and whose financial data are available during the research period extending between the year (2010) -2020) The study sample consisted of (10) Iraqi banks, and to achieve the research objectives, the researcher adopted the experimental approach and the descriptive analytical approach through a test study based on actual data extracted from the financial reports published in the Iraqi Stock Exchange for the period between (2010-2020).

     To analyze the research data and test the main hypothesis, the researcher relied on the general Altman model to measure the ability of this model to predict default by the banks in the research sample over the course of (11) years.

     The results of the research showed that the Altman model has the ability to predict default within two years before it occurs in banks. It also showed that there is an impact of the contents of the Altman model represented by (X1, Securities, as it was found that there is a weakness in the model content indicators for most banks.

The research recommended the necessity of urging banks to use the Altman  model to know the financial situation of the banks in the research sample and to make appropriate investment decisions to be able to face their financial obligations that keep them from defaulting on loans.