Prediction of Bank Failure Using Camel and Market Information: Comparative Appraisal of Some Selected Banks in Nigeria.

Abstract

This paper attempted to predict bank failure using CAMEL and stock market information. The study reviewed journal, seminal papers, articles, websites and banks’ annual financial statement. The study covered five accounting years between 2006 and 2010. Multiple discriminant model was used to predict bank failure and the status of Nigerian banks. It was discovered that almost all the banks used for the study had their Z score fall within bankruptcy region. An attempt was further made to thoroughly evaluate managerial quality because experience has shown that bank failure in Nigeria was largely due to managerial inefficiency . Managerial quality were evaluated using variable such as total loan to total deposit, interest expenses to total deposit and operating expenses to total deposit. We concluded that bank failure is as a result of  poor CAMEL rating as well as excessive risk taking and the end results are credit crunch, unemployment, illiquidity etc . we suggested that the only way to contain bank failure is by ensuring regular and transparent on site and off site examination by CBN and NDIC.

Keywords: bank failure, CAMEL, stock market information