Assessing Financial Health and Predicting Financial Failure in Iraq: An Analytical Study of Financial Performance Indicators in the Banking Sector

Purpose - This study aims to assess financial health and predict financial failure in Iraq’s banking sector by analyzing key financial performance indicators. It evaluates the applicability of financial distress prediction models, such as the Altman Z-Score, and examines their effectiveness in the Iraqi economic context. Design/methodology/approach - The study employs quantitative analysis using financial data from selected private banks listed on the Iraqi Stock Exchange. It applies descriptive statistics, regression analysis, and comparative evaluation of financial health indicators. Additionally, the study contrasts the Z-Score model with a hybrid predictive model incorporating both financial and market-based indicators. Findings - The results indicate that liquidity ratios, debt-to-equity ratios, and return on assets play a significant role in determining financial stability. The Hybrid Model outperforms the Altman Z-Score model in predicting financial failure, particularly for firms with high intangible asset dependence. Furthermore, Iraqi banks face high debt reliance and liquidity risks, necessitating policy adjustments for financial sustainability. Practical implications - The study provides valuable insights for banking regulators, investors, and policymakers in Iraq. It suggests adopting enhanced financial health assessment tools that integrate traditional financial indicators with economic risk factors. Additionally, banks are advised to reduce leverage, enhance liquidity management, and improve transparency in financial reporting. Originality/value - This study contributes to financial research by applying internationally recognized financial failure prediction models to the Iraqi banking sector, an underexplored market. It integrates traditional financial performance indicators with economic risks specific to Iraq, offering practical recommendations for financial stability. The findings enhance decision-making for financial institutions, investors, and policymakers.