Corporate Bankruptcy: An Application of Altman Model in Predicting Potential of Failure in Nigerian Banking Sector

Abstract

This study assessed the extent to which we can rely on the Altman Model to predict possibility of corporate bankruptcy/ failure in Nigerian banking sector. Data were collected from annual reports and accounts of the banks. Altman prediction was applied. Findings show that the Model was capable of measuring accurately the failure potential of sound and healthy banks. Findings also show that Altman bankruptcy prediction Model could have successfully predicted the failure of the banks that actually went under in the Nigerian banking sector. The implication of this finding is that the standard rating system of regulatory Authorities for predicting the extent of failure in the Nigerian banks is still low, hence, Nigeria has had ample cases of bank failures in the past; it would have been prevented if they had applied a model similar to Altman’s z-score. Based on this, researcher recommends that effort should be made by the regulatory authorities and agencies in the financial sector to domesticate the Altman’s model for a result oriented monitoring of the health of banks. Again there is the need to bring financial system under control and make them to fit for the service and the interest of depositors and shareholders.