Design of Early Warning System Model to Predict the Probability of Bankruptcy in a Selection of Islamic Countries Using Multiple Logit

There have been many financial crises in economies in recent decades, often with political, social, and economic consequences. One of these crises is bank bankruptcy, the destruction of which can be transferred to other markets. The Islamic banking system, which is relatively new and still growing in the banking industry, due to its religious characteristics such as non-interest-bearing activities, faces more risks and bottlenecks than other banks, which highlights the need to prevent them. In this article, with the aim of designing a an early warning model to predict the probability of bankruptcy in the banking system of 8 selected Islamic countries during the period 1998-2020, the Multinominal Logit Method was used. Bankruptcy was determined using the Z-Score and financial ratios were considered as variables affecting the probability of bank bankruptcy. In the Multinominal Logit method, it is possible to predict the occurrence of bankruptcy in two periods, before the occurrence and during / after the occurrence of  bankruptcy. The results showed that the ratio of working capital to bank assets and the ratio of  bank income before zakat and taxes to net assets in the period before and after bankruptcy had a negative effect on the probability of  bank bankruptcy. The ratio of  total bank debt to equity in both periods had a positive effect on the probability of  bankruptcy. On the other hand, the ratio of accumulated profit to total bank assets in both periods did not have a significant effect on the probability of  bank bankruptcy in selected Islamic countries.