A study on assessing the financial stability of banksin sultanate of Oman using Z-score analysis

Abstract

This study analyzes the financial stability of commercial banks in the Sultanate of Oman using the Z-Score model developed by Edward Altman in 1968. The study examines the financial stability of five major banks listed on the Muscat Securities Market—Bank Muscat, Bank Dhofar, National Bank of Oman (NBO), Ahli Bank, and Bank Nizwa—over the 5-year period from 2018 to 2022. A quantitative research approach was adopted using secondary data obtained from the banks’ annual financial statements, including balance sheets, income statements, and cash flow statements. The Z-Score model evaluates financial health using four key ratios: working capital to total assets, retained earnings to total assets, earnings before interest and taxes (EBIT) to total assets, and market value of equity to total liabilities. The results indicate varying levels of financial stability among the selected banks. Bank Muscat recorded a Z-Score of 1.329, placing it in the gray zone, primarily due to declining profitability. Bank Dhofar recorded a score of 1.0343, reflecting vulnerabilities associated with fluctuating liquidity and low retained earnings. NBO achieved a Z–Score of 1.251, indicating relatively stronger market equity but scope for improvement in working capital and profitability. Ahli Bank recorded a score of 1.11, suggesting financial distress despite some improvement in 2022. Bank Nizwa demonstrated comparatively stronger financial performance, particularly in liquidity and profitability. The findings provide useful insights for investors, regulators, and policymakers in assessing banking-sector stability and developing strategies for financial risk management and sustainable economic growth.