Financial Failure Prediction in Banks: The Case of European Union Countries

Financial crisis in 2007, which is affecting the whole world, revealed the significance of early prediction of distressed banks and companies, and subsequently researches on financial distress prediction in banking sector have accelerated. In this study, in order to estimate the financial failure of banks one year prior and to determine which factors lead to bank failure, a failure prediction model was implemented using panel data for the 1990-2010 period for banks operating in 27 European Union (EU) countries. A panel logit model was applied to determine which of the independent variables caused the bank failure. It is observed that “Non-Interest Income to Total Income” is the best independent variable explaining the dependent variable