ANALYSIS OF THE FINANCIAL DISTRESS OF ISLAMIC BANKS AND CONVENTIONAL BANKS USING THE ALTMAN Z-SCORE APPROACH

Amelia, Riska and Junaidi, Junaidi and Rahmawati, Rahmawati (2025) ANALYSIS OF THE FINANCIAL DISTRESS OF ISLAMIC BANKS AND CONVENTIONAL BANKS USING THE ALTMAN Z-SCORE APPROACH. ANALYSIS OF THE FINANCIAL DISTRESS OF ISLAMIC BANKS AND CONVENTIONAL BANKS USING THE ALTMAN Z-SCORE APPROACH, 11 (2). pp. 322-335. ISSN ISSN 2442-4420

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Abstract

The financial soundness of banks is an important indicator of their ability to maintain stability, manage risks, and sustain operations under changing economic conditions. In Indonesia, the banking industry consists of conventional and Islamic banking systems that operate under different business principles. Conventional banks mainly rely on interest based transactions,whereas Islamic banks operate based on profit-sharing principles and comply with Islamic law. These operational differences influence their capital structure, asset management, risk exposure, and overall resilience to financial instability. Therefore, evaluating the financial soundness of both banking systems is essential to understand their ability to withstand potential financial distress. This study aims to analyze and compare the financial soundness of Islamic and conventional banks using the Altman Z-Score approach. The Altman Z-Score is employed as an early warning model to assess the likelihood of financial distress by combining several financial ratios into a single composite score. Based on the results, banks are classified into three categories: safe zone, grey zone, and distress zone. This classification provides a comprehensive overview of the financial condition of banks and their potential exposure to financial difficulties. Furthermore, the study not only compares the Z-Score results between Islamic and conventional banks but also interprets the underlying factors contributing to the observed differences. Variations in capital adequacy, profitability, liquidity management, financing and lending practices, business models, and risk management strategies are expected to influence the financial soundness of each banking system. In addition, differences in regulatory frameworks and operational characteristics may also affect the ability of banks to maintain financial stability during periods of economic uncertainty. The findings of this study are expected to provide a better understanding of the financial soundness of Islamic and conventional banks in Indonesia. They also offer practical implications for bank management, investors, and regulators in developing more effective risk management strategies, strengthening financial resilience, and supporting the long-term sustainability of the banking sector.

Item Type:	Article
Contributors:	Contribution Contributors ID/NIDN/NIDK Teacher Junaidi, Junaidi NIDN0906027601 Teacher Rahmawati, Rahmawati NIDN0929127601
Uncontrolled Keywords:	Keywords: Altman Z-Score, Conventional Banking, Financial Distress, Islamic Banking, Risk Assessment
Subjects:	L Education > L Education (General)
Divisions:	Fakultas Ekonomi dan Bisnis > Akuntansi
Depositing User:	Riska Amelia
Date Deposited:	16 Sep 2026 06:26
Last Modified:	16 Sep 2026 06:26
URI:	http://repository.umpalopo.ac.id/id/eprint/6939

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