Modeling altman's credit risk model for more applicable in Vietnam
Abstract
Altman Credit risk model is a function to measure the borrowers’ probability of bankruptcy in 2 years, thus it affects to bank’s approving for loans application. There are 3 functions, for manufacturing industry, for non-manufacturing industry, and for private firms. Company that lies above the cutoff point will be classified as “Safe debtor”, below the cutoff point will be predicted as being bankruptcy in 2 year.
Since exposure to credit risk continues to be the leading source of problems in
banks, in this paper a model for Vietnamese context is modified.
Linear Discriminant Analysis was used to develop the Altman‘s function for Vietnamese environment, with 60 default and non-default companies in manufacturing and non-manufacturing industries. The list of default and non-default companies was taken from CIC (Credit Information Center) rating, in that, the official results of the credit rating of listed companies was released.
Key words: discriminant analysis, bankruptcy prediction, financial ratios, default and non-default, listed firms.