A Study on Assessing the Financial Stability of Banks in Sultanate of Oman Using Z- Score Analysis

Abstract

The Z-Score model, a crucial predictor of possible bankruptcy risk, is used in this study to evaluate the financial stability of commercial banks in the Sultanate of Oman. From 2018 to 2022, it evaluates five major banks: Bank Muscat, Bank Dhofar, National Bank of Oman (NBO), Ahli Bank, and Bank Nizwa. Utilizing secondary data from the Muscat Securities Market, a quantitative methodology is applied. Working capital to total assets, retained earnings to total assets, EBIT to total assets, and market value of equity to total liabilities are the four main ratios that the Z-Score model assesses. Financial security is indicated by scores above 2.7, whereas high risk is indicated by scores below 0.9. The results show that, despite having sufficient liquidity and market equity, Bank Muscat (Z-Score: 1.329) is in the "Gray Zone" because of its declining profitability. Low retained earnings and erratic liquidity are Bank Dhofar's (1.0343) weaknesses. NBO (1.251) has comparatively higher market equity but lower working capital and profitability. Despite modest gains in 2022, Ahli Bank (1.11) exhibits distressing signs, indicating problems with earnings and liquidity. On the other hand, Bank Nizwa exhibits sound financial standing, as evidenced by its high Z-Score, which shows steady increases in liquidity and profitability. The study offers insightful information about the banking industry's advantages and disadvantages in Oman. Some banks exhibit financial resilience, but others are exposed to risks that could compromise their long-term viability. For investors, regulators, and legislators, the findings are important because they provide a foundation for better risk management and financial strategies that promote sustainable economic growth.