Predicting Sustainable Bank Performance in Nigeria Using Composite Financial Index

Abstract

This study seeks to predict sustainable Bank performance in Nigeria using Composite Financial Index. Composite Financial Index (CFI) is a single indicator of overall institutional financial health based on performance in four principal domains of finance; sufficiency and flexibility of financial resources, management of debt, the performance of assets, and results from operations. Each domain is measured by a core financial ratio. The main objective of the study was to find out the level of banks' performance in Nigeria using Composite Financial Index. The study adopted Market Power Theory and the Efficiency Structure Hypothesis. The paper specified various ways to achieve its objectives, such that objective one was achieved by compiling all the variables that make up the CFI, and all these variables would be identified and compared with the contents of financial reports of the banks. The paper in its finding shows some weaknesses in the application of individual financial ratios in measuring performance and predicted that Composite Financial Index would better explain the true performance level of a bank rather than an individual financial ratio. The paper recommends that Nigeria banks should adopt the use of CFI in measuring performance and Analysts who desire to use the conventional ratio analysis should also apply the CFI as a further confirmation of the results of the conventional ratio analysis so that the public and Nigeria banks would not experience what happened in the sector in 2009.