This study investigates the predictive power of financial ratios in assessing the financial stability of Nigerian commercial banks, with a particular focus on the application of Altman’s Z-score model. Using a sample of twelve commercial banks and financial data spanning from 2011 to 2020, the study evaluates insolvency risk based on key financial indicators, including liquidity, profitability, leverage, and asset utilization ratios.

The results reveal that most of the sampled banks reported Z-scores below the critical threshold of 1.81, indicating a heightened risk of financial distress during the review period. Among the ratios analyzed, the working capital to total assets (WCTA) ratio emerged as a significant driver of Z-score variations, highlighting its relevance in assessing short-term solvency. The study confirms the Z-score model’s utility as a reliable early warning tool for detecting potential bankruptcy in the Nigerian banking sector.

However, findings also underscore the limitations of directly applying the Altman Z-score in the Nigerian context. Factors such as regulatory instability, inconsistent monetary policies, and broader macroeconomic volatility reduce the model’s predictive precision. These contextual challenges suggest the need to adapt the model by integrating country-specific variables to improve its relevance and accuracy.

The study concludes that while the Altman Z-score remains a valuable instrument for preliminary financial health assessments, its effectiveness in Nigeria would be enhanced by incorporating additional indicators reflective of local economic dynamics and banking sector risks. It recommends that financial institutions, regulators, and investors adopt the Z-score framework as part of a broader financial monitoring system, with adjustments to account for domestic structural and policy-related complexities