A novel approach to improve the bank ranking process: an empirical study in Spain

Abstract

In this paper, a novel approach to the bank ranking process based on the possibilistic theory is proposed. Through this new method, the sensitivity of the results can be improved. Several methods are applied in order to rank the financial performance of Spanish Banks. Methods such as the Fuzzy Analytic Hierarchy Process (FAHP) and fuzzy TOPSIS are integrated in the proposed model. Criteria and sub-criteria weights are computed based on the judgments of experts using FAHP. These weights and financial indicators are inputs of the fuzzy TOPSIS methods for ranking the banks. The financial ratios are based on the CAMEL rating system criteria. Moreover, the results from the application of several distance measurements (Vertex, Hamming and Euclidean) in fuzzy TOPSIS as well as a new measure based on the possibilistic theory are compared. Finally, the results obtained applying fuzzy TOPSIS show that they vary depending on the separate measure, so it is necessary to have different measures to be able to correct decision making.