Bank Z-score

This financial metric serves as a crucial barometer for assessing the likelihood of systemic default within a nation's banking sector. By evaluating the stability provided by a bank's capitalization and its profitability—represented as the return on assets (ROA)—against the fluctuations in those returns, it offers a comprehensive view of banking resilience. The formula incorporates both the average performance of the banking entities and their equity in relation to total assets while factoring in the risk inherent in ROA variability. By leveraging detailed, unconsolidated data sourced from individual banks, this metric provides policymakers and investors with an insightful analysis of a country's financial health, highlighting potential vulnerabilities and strengthening risk assessment processes. Source: