A Multicriteria Discrimination Approach for the Credit Rating of Asian Banks

Annals of Finance, Vol. 3, No. 3, pp. 351-367, 2007

Posted: 25 Jul 2006

See all articles by Fotios Pasiouras

Fotios Pasiouras

GSCM-Montpellier Business School

Chrysovalantis Gaganis

University of Crete - Faculty of Social Sciences - Department of Economics

Michael Doumpos

Technical University of Crete (TUC) - Department of Production Engineering and Management

Abstract

In this paper we develop a multicriteria decision aid model, to investigate whether it is possible to replicate the credit ratings of Fitch on Asian banks using publicly available data. The model is developed with the Multi-group Hierarchical DIScrimination (MHDIS) approach, following a 10-fold cross validation procedure. Five financial variables are selected from a list of nineteen ones through factor analysis. An additional set of five non-financial variables covering ownership, corporate governance, auditing, strength of bank's franchise and its banking environment is also being used. The results show that equity/customer & short term funding, net interest margin and return on average equity are the most important financial variables. The number of shareholders, the number of subsidiaries and the banking environment of the country in which the banks operate are the most important non-financial ones. In terms of classification accuracies, the results show that the MHDIS model can replicate the credit ratings of Fitch with a satisfactory accuracy and is more efficient than discriminant analysis and ordered logistic regression that are used for comparison purposes.

Keywords: Asia, Banks, Credit ratings, Fitch, Multi-criteria

JEL Classification: C63, G21

Suggested Citation

Pasiouras, Fotios and Gaganis, Chrysovalantis and Doumpos, Michael, A Multicriteria Discrimination Approach for the Credit Rating of Asian Banks. Annals of Finance, Vol. 3, No. 3, pp. 351-367, 2007, Available at SSRN: https://ssrn.com/abstract=918462

Fotios Pasiouras (Contact Author)

GSCM-Montpellier Business School ( email )

2300, Avenue des Moulins
Montpellier, 34185
France

Chrysovalantis Gaganis

University of Crete - Faculty of Social Sciences - Department of Economics ( email )

University Campus
Rethymno, Crete, 74100
Greece

HOME PAGE: http://economics.soc.uoc.gr/en/staff/4551/17

Michael Doumpos

Technical University of Crete (TUC) - Department of Production Engineering and Management ( email )

University Campus
Chania
Crete, 73100
Greece
+30 28210 37318 (Phone)
+30 28210 69410 (Fax)

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