Ranking State-Run Banks Using Multi-Criteria Decision Making Methods Taking Advantage of the Banking Health Criteria

Abstract

This study primarily aims to evaluate the performance and ranking of state-run banks using multi-criteria decision making methods. One of the most main performance evaluation methods is the calculation of financial criteria. There are different systems to evaluate the financial performance of banks, and in line with the health of banks these systems utilize banking health criteria. In this study, four principal criteria, namely asset quality, liquidity, capital adequacy, profitability and ten financial sub-criteria have been used in ranking state-run banks. The focal problem in analyzing financial ratios is that each financial measure evaluates a specific aspect of organizations’ financial performance; therefore, financial ratios cause confusion for managers and investors. As a result, solutions are needed to overcome these limitations; multi-criteria decision-making methods are among these solutions. This study uses the MEREC method, which is one of the new methods of multi-criteria decision-making, due to such advantages as giving more weight to a criterion whose removal leads to greater effects on the performance of all options, helping decision makers to eliminate some criteria in the decision making process, and not involving the relative valuation, and weighing the options based on experts’ opinions. Furthermore, based on the characteristics of multi-criteria decision-making methods, MARICA, CODAS, and EDAS methods were also used to rank state-run banks in the year 2019, and finally, the results of the methods were combined using the Borda and Copeland methods.