Title: Earnings warning framework predicting bank financial failures – the case of Nigeria in the 1990s

Authors: Jonathan Njoku, Eno L. Inanga

Addresses: Kuwait-Maastricht Business School, Kazima Street, Block 3, Dasma, P.O. Box 9678 Salmiya, 22097, Kuwait. ' Maastricht School of Management, Endepolsdomein 150, 6229 EP Maastricht, Postbus1203, 6201 BE Maastricht, The Netherlands

Abstract: This study evaluates the CAMELS tool, which bank regulators use to gauge bank financial condition as part of off-site surveillance. Both the choice of variables and the factors that they represent affect regulatory opinion on the nature of bank problem and policy measures applicable. By performing discriminant analysis on typical variables used in formulating the framework of CAMELS, the study shows that some variables in the Nigerian formulation did not influence bank financial condition. In addition, typical variables that prove useful in explaining bank financial condition in the case of Nigeria were not included in the Nigerian formulation. The study further reports the adequacy of the so-called earnings-warning factor alone in discriminating across categories of weak, normal and strong banks. It reflects structural operating problem that had plagued Nigerian banks over the years which policy prescriptions appeared to miss.

Keywords: earnings warning; Nigerian banking; bank financial condition; CAMELS; discriminant analysis; critical accounting; Nigeria; financial failures; bank failures.

DOI: 10.1504/IJCA.2009.028064

International Journal of Critical Accounting, 2009 Vol.1 No.4, pp.406 - 429

Published online: 03 Sep 2009 *

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