A Multicriteria Decision Framework for Measuring Banks' Soundness around the World

Journal of Multi-Criteria Decision Analysis, Vol. 14, pp. 103-111, 2006

Posted: 18 Jun 2007 Last revised: 15 Jul 2009

See all articles by Chrysovalantis Gaganis

Chrysovalantis Gaganis

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

Fotios Pasiouras

GSCM-Montpellier Business School

C. Zopounidis

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

Abstract

In this paper we use a sample of 894 banks from 79 countries to develop a multicriteria decision aid model, for the classification of banks in three groups on the basis of their soundness. The model is developed with the UTADIS method, through a ten-fold cross-validation procedure using six financial and four non-financial variables. The ratings of Fitch form the basis for assigning banks in the three groups. The results indicate that asset quality (as measured by loan loss provisions), capitalization, and the market where banks operate are the most important criteria (in terms of weights) in classifying the banks. Profitability and efficiency in expenses management are also important attributes, whereas size and listing in a stock exchange are the least important ones. UTADIS achieves higher classification accuracies than discriminant analysis and ordinary logistic regression which are used for benchmarking purposes.

Keywords: Banks, Soundness, Credit ratings, Multicriteria decision aid, UTADIS

JEL Classification: C63, G21

Suggested Citation

Gaganis, Chrysovalantis and Pasiouras, Fotios and Zopounidis, Constantin, A Multicriteria Decision Framework for Measuring Banks' Soundness around the World. Journal of Multi-Criteria Decision Analysis, Vol. 14, pp. 103-111, 2006, Available at SSRN: https://ssrn.com/abstract=993375

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

Fotios Pasiouras (Contact Author)

GSCM-Montpellier Business School ( email )

2300, Avenue des Moulins
Montpellier, 34185
France

Constantin Zopounidis

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

University Campus
Chania
Crete, 73100
Greece
+30 28210 37236 (Phone)
+30 28210 69410, 37236 (Fax)

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