Deep Hybrid CNN-LSTM-GRU Model for a Financial Risk Early Warning System

Financial risk early warning systems are essential for proactive risk management in volatile markets, particularly for emerging economies such as China. This study develops a hybrid deep learning model integrating Convolutional Neural Networks (CNNs), Long Short-Term Memory (LSTM), and Gated Recurrent Units (GRUs) to enhance the accuracy and robustness of financial risk prediction. Using firm-level quarterly financial data from Chinese listed companies, the proposed model is benchmarked against standalone CNN, LSTM, and GRU architectures. Experimental results show that the hybrid CNN–LSTM–GRU model achieves superior performance across all evaluation metrics, with prediction accuracy reaching 93.5%, precision reaching 92.2%, recall reaching 91.8%, and F1-score reaching 92.0%, significantly outperforming individual models. Moreover, the hybrid approach demonstrates faster convergence than LSTM and improved class balance compared to CNN and GRU, reducing false negatives for high-risk firms—a critical aspect for early intervention. These findings highlight the hybrid model’s robustness and real-world applicability, offering regulators, investors, and policymakers a reliable tool for timely financial risk detection and informed decision-making. By combining high predictive power with computational efficiency, the proposed system provides a practical framework for strengthening financial stability in emerging and dynamic markets.

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Publication Details

Journal
Risks
Published
2026-01-05
DOI
https://doi.org/10.3390/risks14010014
Primary Topic
Financial Distress and Bankruptcy Prediction
Type
article
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article

Deep Hybrid CNN-LSTM-GRU Model for a Financial Risk Early Warning System

Muhammad Ali Chohan, T. Li, Shamaila Butt, Shaik Mohammad Abrar
Risks
Financial Distress and Bankruptcy Prediction
article

Deep Hybrid CNN-LSTM-GRU Model for a Financial Risk Early Warning System

Muhammad Ali Chohan, T. Li, Shamaila Butt, Shaik Mohammad Abrar
article en

Abstract

Financial risk early warning systems are essential for proactive risk management in volatile markets, particularly for emerging economies such as China. This study develops a hybrid deep learning model integrating Convolutional Neural Networks (CNNs), Long Short-Term Memory (LSTM), and Gated Recurrent Units (GRUs) to enhance the accuracy and robustness of financial risk prediction. Using firm-level quarterly financial data from Chinese listed companies, the proposed model is benchmarked against standalone CNN, LSTM, and GRU architectures. Experimental results show that the hybrid CNN–LSTM–GRU model achieves superior performance across all evaluation metrics, with prediction accuracy reaching 93.5%, precision reaching 92.2%, recall reaching 91.8%, and F1-score reaching 92.0%, significantly outperforming individual models. Moreover, the hybrid approach demonstrates faster convergence than LSTM and improved class balance compared to CNN and GRU, reducing false negatives for high-risk firms—a critical aspect for early intervention. These findings highlight the hybrid model’s robustness and real-world applicability, offering regulators, investors, and policymakers a reliable tool for timely financial risk detection and informed decision-making. By combining high predictive power with computational efficiency, the proposed system provides a practical framework for strengthening financial stability in emerging and dynamic markets.

RisksVol. 14(1)
Arab Open University (OM), Anhui University (CN), Hefei University (CN), Guangzhou Experimental Station (CN), University of Technology Malaysia (MY), Sohar University (OM)
Peace, Justice and strong institutions
Openalex Percentile: Top 97%
Financial Distress and Bankruptcy Prediction
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Deep Hybrid CNN-LSTM-GRU Model for a Financial Risk Early Warning System — Muhammad Ali Chohan, T. Li, et al. · Risks (2026) | TGRS Research Map | TGRS