Testing the Relationship Between Financial Fragility and Financial Recovery Using Causality (Granger): An Analytical Study of a Sample of Commercial Banks Listed in the Iraq Stock Exchange

Abstract

The research aims to measure and analyze the financial fragility that Iraqi commercial banks may suffer from, as well as build a framework of knowledge on the issues of financial fragility and financial recovery by addressing the researchers' most important ideas for them and identifying their most prominent indicators. The research attempts to measure and analyze the causal relationship of (Granger) between financial fragility and financial recovery, with determining the direction of this relationship. The research used the (Z-score) model and financial recovery indicators (cash balance ratio, rate of return on deposits, appropriateness of capital for loans and advances, appropriate Capital for total deposits) and (Granger) causality test to prove its hypotheses. The sample included (10) Iraqi commercial banks listed on the Iraqi Stock Exchange, and the research covered (10) years from 2011 to 2020; and in order to achieve the objectives of the research and prove its hypotheses, it has relied on the descriptive and analytical approach, and in conclusion, the research concluded with a number of conclusions and recommendations. Among the most important conclusions reached by the research, the indicators of financial fragility in the Iraqi commercial banks vary in the research sample, and this means that each bank has financial fragility that depends on the indicators of financial fragility that were measured and there is a relationship One-way causation between financial fragility and indicators of financial recovery for Iraqi commercial banks, the research sample, meaning that any change in the cash balance ratio (Y1) causes a change in financial fragility (X), and any change in fragility Financial (X) causes a change in the rate of return on deposits (Y2), as well as any change in financial vulnerability (X) causes a change in the suitability of capital for loans and advances (Y3), and any change in the suitability of capital for total deposits (Y4) causes A change in financial fragility (X), and one of the most important recommendations made by the research is the need for banks in general and Iraqi commercial banks to sample the research in particular to rely on unified indicators to measure levels of financial fragility in proportion to the state’s environment, because these indicators will give an impression to both Lenders and borrowers about the strength and stability of the financial position, the ability to repay debts and loans, and to stand up to financial crises if they occur.