Economic and Financial Review


Central Bank of Nigeria


Early Warning Models, Problem Banks, Banking, Nigeria


This paper proposes alternative early warning models which could be helpful in identifying problem banks in Nigeria. The models rely on the /ogit-analytic technique and the use of financial ratios derived from the monthly returns the licensed banks render to both the Central Bank of Nigeria (CBN) and Nigeria Deposit Insurance Corporation (NDIC). The two separate models, each developed for commercial and merchant bank, are more efficient in that they drastically reduced the mis-classification errors inherent in other failure prediction models developed in the past. To illustrate the applications of the models for policy, an appraisal of the financial condition of all the reporting commercial and merchant banks in the third quarter of /995 was performed. Apart from identifying all banks that were already known to be distressed by the regulatory authorities, the results also revealed that some banks require urgent attention in order to prevent them from becoming problem banks.

Author Bio

The author is a Principal Statistician, Central Bank of Nigeria.

Publication Title

CBN Economic and Financial Review





Recommended Citation

Doguwa, S. I. (1996). On Early Warning Models for the Identification of Problem Banks in Nigeria. CBN Economic and Financial Review. 34(1), 462-487.



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