Capital Ratios As Predictors of Distress: A Case Study of the Nigerian Banking System
Keywords:
Capital Ratio, Risk-weighted, Leverage, Gross Revenue Ratio, Early Warning Systems
Abstract
We examine the relationship between capital ratios and bank distress and also compare the efficiency of three capital ratios risk-weighted leverage and gross revenue ratios in the prediction of bank distress The above objective is based on the recent global failure of banks which is a pointer to the fact that the Early Warning Systems EWS Models with the aim of identifying weaknesses and vulnerabilities among financial institutions have either failed or have been wrongly applied In addition some studies show that the risk-weighted capital ratio used in bank distress prediction may become obsolete and ineffective within a short time and that it may give rise to economic problems Some other studies also show that capital ratios may in fact not be related to bank distress and should not be used to monitor it Data on bank distress in Nigeria from 1991 to 2004 are used and the OLS regression autoregression and the Granger causality test are used to analyse the data The study show that the three capital ratios predicted bank distress significantly and that there is no significant difference in the level of efficiency of the three capital ratios in distress prediction The continued use of capital ratios in the prediction of bank distress is suggested The leverage capital ratio and the gross revenue capital ratio may be used to replace the risk-weighted capital ratio since they are simpler and may not be influenced by the ever changing risk pattern of the banks
Downloads
- Article PDF
- TEI XML Kaleidoscope (download in zip)* (Beta by AI)
- Lens* NISO JATS XML (Beta by AI)
- HTML Kaleidoscope* (Beta by AI)
- DBK XML Kaleidoscope (download in zip)* (Beta by AI)
- LaTeX pdf Kaleidoscope* (Beta by AI)
- EPUB Kaleidoscope* (Beta by AI)
- MD Kaleidoscope* (Beta by AI)
- FO Kaleidoscope* (Beta by AI)
- BIB Kaleidoscope* (Beta by AI)
- LaTeX Kaleidoscope* (Beta by AI)
How to Cite
Published
2011-03-15
Issue
Section
License
Copyright (c) 2011 Authors and Global Journals Private Limited
This work is licensed under a Creative Commons Attribution 4.0 International License.