CAMEL Indicators and the Financial Health of Selected Banks in Nigeria

Abstract

This study aimed to examine the impact of CAMEL indicators on the financial health of selected banks in Nigeria. Access bank, First bank, Zenith bank, Fidelity bank, Unity bank, Union bank and Wema bank were examined from 2012 to 2020.  Data for the study was collected from the audited annual reports of investigated banks. The study applied multiple discriminant (Z-score) technique and censored logistic regression to capture the effects of CAMEL indicators.  The discriminant analysis revealed that about 69.84% of the studied banks fall into distress status, while only 30.16% are financially sound. The censored regression indicates that liquidity, asset quality, earnings and management quality significantly and negatively impact on bank financial health. This study concludes that CAMEL variables are potent instrument for assessing bank financial soundness and recommend that bank management should improve on their CAMEL indicators as they have the potential to guarantee banks financial stability.

Keywords:       Bank Financial Health, Censored Logistic Regression, CAMEL Indicators, Multiple Discriminant Analysis