Testing the Altman Z-3 and Sherrod financial failure prediction models on commercial banks: An applied study on commercial banks listed on the Libyan stock market

Abstract

The study aimed to identify the possibility of predicting financial failure in Libyan commercial banks using modern methods of financial analysis, using the developed Altman model known as zeta 3, as well as the Sherrod model, applied to Libyan commercial banks listed on the Libyan Stock Market, namely, the Bank of the Republic and the Sahara Bank, and based on the financial statements of the two banks during the period from 1/1/2019 to 31/12/2023. The study showed the most important results, the congruence of the results of predicting financial failure using the developed Altman model zeta 3 and the Sherrod model in Libyan commercial banks, the Bank of the Republic and the Sahara Bank. The study also showed that, using the two models, the Bank of the Republic is located in a comfortable zone and is far from the risk of financial failure, while the Bank of Sahara is located in the gray zone and therefore cannot be judged in terms of financial failure, which indicates the risks that the bank may be exposed to. The study also showed the ability of the two models to predict the financial failure of Libyan commercial banks.