Financial ratios as one of the measurement tools in assessing rural bank fragility

• Main Authors: Bayot, Georgina C., De Castro, Erika J., Tuason, Ma. Ramona Dominique A.
• Format: text
• Language: English
• Published: Animo Repository 2016
• Subjects: Banks and banking > Philippines; Ratio analysis; Finance and Financial Management
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/6318
• Institution: De La Salle University

The number of rural banks have recently been declining for the past few years. There are a number of factors that can contribute to a rural bank's bankruptcy such as illiquidity and insolvency, mismanagement or lack of management, scam, poor governance, and lack of business plan. This paper measures rural bank fragility by using financial ratios as one of the measurement tools. The logistic regression model, otherwise known as the LOGIT model, was utilized in this study since this is the tool popularly used by authors such as Hanh and Montgomery, Zaghdoudi, and Pervan I., Pervan M., and Vukoja, in predicting rural bank failure using financial ratios. The study was able to find out the ratios that are significant in measuring the probability of rural bank failure from the select ratios deemed to be mostly used by financial institutions. Furthermore, the logistic regression model was proven to be a good tool in predicting the probability of rural bank failure by using the Hosmer-Lemeshow test. In addition to that, the entry of non-rural banks in areas where rural banks operate does not directly affect the probability of rural bank failure.