ASSESSMENT OF THE FINANCIAL SOUNDNESS OF NIGERIAN BANKS: ALTMAN’S Z-SCORE AND BANKOMETER MODELS APPROACH.
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Date
2020
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DEPARTMENT OF FINANCE,UNIVERSITY OF ILORIN, NIGERIA
Abstract
In the past years, the unstable macroeconomic environment continued to exert pressure on the financial soundness of the Nigerian banking sector. The study, therefore, investigates the financial soundness of the listed Nigerian deposit money banks for the period between 2016 and 2019, to predict the susceptibility of any of the banks to potential bankruptcy. The study employs Altman's Z-Score models, a multivariate discriminant analysis (MDA) statistical tool and the Bankometer S-Score model to predict potential bankruptcy in the banking sector. The results from Altman’s Z-Score show that six out of the twelve banks, were in a grey zone while the remaining ones were in a potential bankruptcy zone. Bankometer, on the other hand, classifies all the banks except one, to be in the safety zone. The study, therefore, concludes that because Altman’s Z-Score analysis could not find any of the banks in the safety zone, in contrast to the Bankometer S-Score results, the financial soundness of the banking sector in the country could be fragile. The two methods, therefore, complement each other in evaluating the financial soundness of the banks.
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Keywords
Altman's Z-Score, Bankometer S-Score, financial soundness, bankruptcy