Predicting Financial Stability of Banks in Nigeria Using the Altman Z Score Model.

Abstract

The global economy has brought with it a lot of complexity to the financial service industry (Banking, Insurance, and FinTech’s). With recent global events like the pandemic, the need to forestall and mitigate any corporate business failure has become necessary. The financial sector is seen as a very important aspect in the growth and stability of any economy. The stability of this sector of the economy has been of utmost concern to regulatory agencies and relevant stakeholders. Altman Z score is a financial tool for dissecting the stability of entities with published financial statement. This research paper aim to predict the strengths and weaknesses in selected commercial banks in Nigeria using the Altman Z Score model. To achieve this, we look at past records of banks for a period of twelve years to foretell what the future holds and what stakeholders should expect. We look the extent to which the model is been used by the regulatory agency for bank failure particularly after the bank consolidation in the banking sector. Ten (10) banks were selected for this study using purposeful sampling technique. The study concluded that Z-score model is an effective tool for predicting distress in financial institutions and was therefore recommended.