Impact Of Financial Distress On Uk Retail Bank Customer Loyalty During Crisis

Many academics seem to be moving towards models in predicting the probability of financial distress after eliminating ratio analysis as an analytical tool in assessing the performance of businesses before and after the crisis period. This study considers the controversial issues that arise in testing the performance of prediction models. Today, the original Z score model that was developed by Altman in 1968, composed of accounting ratios is popular and still being used by practitioners, scholars, credit-lenders, investors, agencies and management. Can we actually rely on the accuracy of Multiple Discriminant Analysis (MDA) without adjusting its variables in successfully predicting financial distress within the U.K retail banking sector during crisis periods? Or can we bridge this gap? The overall aim of this study is to attempt the impart of financial distress in UK banking performance before, during and after the global financial crisis by establishing if any relationship exist between financial distress and crisis. Specifically, a set of financial and economic ratios in the context of multiple discriminant statistical methodology is employed. The data used in this study are limited to the retail banking sector over a 10 year period (2004-2013). Consistent with Bank capitalization and Trade-off theories, we find that most banks performed poorly during the crisis period due to high debt or leverage and limited liquidity available to meet up payments. In addition, the Z score model has several short-comings when applied to the UK retail banking sector to predict financial distress.