Detecting Early Warning Bank Distress Signals in Nigeria: A Multi Discriminant Analysis Approach.

Abstract

The multi discriminant analysis model (MDA) as proposed by Altman in 1968 was applied to a group of failed and healthy banks in Nigeria to ascertain if MDA is a veritable tool to predict business failure in the Nigerian banking industry. Data was gathered for a five year period for ten (three failed and seven healthy) sampled banks. The results show that MDA is a veritable tool for assessing the financial health of banks. As such, it has high predictive power to deduce from a set of these ratios the likelihood of failure or otherwise. The MDA not only predicts business failure but revealed most importantly that the warning signals of impending failure became manifested one to two years before the studied banks actually failed.

Keywords: Bank distress; multi discriminant analysis; predicting business failure; ratios.