AN ANALYSIS OF POTENTIAL FINANCIAL DISTRESS OF SELECTED NIGERIAN BANKS USING ALTMAN Z-SCORE MODEL

Abstract

The stability of financial institutions is a cornerstone for sustaining economic development, especially in emerging markets like Nigeria. This research aims to analyse the potential financial distress of some selected Nigerian banks using the Altman Z-Score model. The model is a well-established multivariate analytical tool that integrates several key financial ratios to estimate the likelihood of insolvency. The research uses secondary data from three Nigerian commercial banks, covering the period from 2017-2023. Key variables analyzed include Working capital, Retained earnings, Earnings before interest and tax (EBIT), Market value of equity, Sales, Total assets and Total liabilities. Findings indicate that there is significant relationship between the Altman Z- score and the likelihood of bankruptcy and financial distress in Nigerian banks, its predictive efficacy is often influenced by local economic factors, such as fluctuations in regulatory frameworks and broader market conditions. Therefore, the study suggests that the Altman Z-Score model might require adaptation for the Nigerian banking environment to improve its reliability in bankruptcy prediction. This research has significant implications for regulators, investors, and policymakers aiming to enhance the resilience of the financial system by identifying and mitigating risks associated with bank failures.