Prediction of default probability in banking industry using CAMELS index: A case study of Iranian banks

Valahzaghard, M.; Bahrami, M.

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Management Science Letters

ISSN 1923-9343 (Online) - ISSN 1923-9335 (Print) Quarterly Publication Volume 3 Issue 4 pp. 1113-1118 , 2013

Prediction of default probability in banking industry using CAMELS index: A case study of Iranian banks Pages 1113-1118 Download PDF

Authors: Mohammad Khodaei Valahzaghard, Maryam Bahrami

DOI: 10.5267/j.msl.2013.03.016

Keywords: CAMELS, Capital Adequacy, Default Probability, Earning Quality

Abstract: This study examines the relationship between CAMELS index and default probability among 20 Iranian banks. The proposed study gathers the necessary information from their financial statements over the period 2005-2011. The study uses logistic regression along with Pearson correlation analysis to consider the relationship between default probability and six independent variables including capital adequacy, asset quality, management quality, earning quality, liquidity quality and sensitivity of market risk. The results indicate that there were no meaningful relationship between default probability and three independent variables including capital adequacy, asset quality and sensitivity of market risk. However, the results of our statistical tests support such relationship between default probability and three other variables including management quality, earning quality and liquidity quality.

How to cite this paper

 Valahzaghard, M & Bahrami, M. (2013). Prediction of default probability in banking industry using CAMELS index: A case study of Iranian banks.Management Science Letters , 3(4), 1113-1118.

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