Combining Time Series Analysis and Multi Criteria Decision Making Techniques for Forecasting Financial Performance of Banks in Turkey


ÖNDER E., HEPŞEN A.

International Journal of Latest Trends in Finance and Economic Sciences, vol.3, pp.530-555, 2013 (Peer-Reviewed Journal)

Abstract

Forecasting plays a major role in financial 
planning and it is an essential analytical tool in banks’ 
strategies. In recent years, researchers are developing 
new techniques for estimation. Financial performance 
evaluation of banks is a kind of multi-criteria decision 
making  (MCDM)  problem  which  has  developed 
rapidly.  It  is  very  important  for  a  firm  to  monitor  a 
wide  range  of  performance  indicators  in  order  to 
ensure  that  appropriate  and  timely  decisions  and 
plans  can  be  made.  Suitable  performance  measures 
can  ensure  that  managers  adopt  a  long-term 
perspective and allocate the company’s resources to 
the most effective activities. The aim of this study is to 
evaluate  the  financial  performance  model  of  Turkish 
Banks  during  2012-2015  using  forecasting  (based  on 
2002-2011  data)  methods  and  multi  criteria  decision 
techniques.  As  forecasting  analysis  tools,  classical 
time  series  methods  such  as  moving  averages, 
exponential  smoothing,  Brown's  single  parameter 
linear exponential smoothing, Brown’s second-order 
exponential  smoothing,  Holt's  two  parameter  linear 
exponential  smoothing  and  decomposition  methods 
applied  to  financial  ratios  data.  After  forecasting 
techniques  Analytical  Hierarchy  Process  (AHP)  and 
Technique  for  Order  Preference  by  Similarity  to 
Ideal  Solution  (TOPSIS)  methodologies  are  used  for 
the  outranking  of  banks.  This  model  is  applied  to  a 
case study for the financial performance evaluation of 
3  state banks (Ziraat Bank, Halk Bank and Vakıflar 
Bank);  9  private  banks  (Akbank;  Anadolubank; 
Sekerbank;  Tekstil  Bank;  Turkish  Bank;  Turk 
Ekonomi Bank; Garanti Bank; Is Bank and Yapı 
Kredi  Bank)  and  5  foreign  banks  (Denizbank; 
Eurobank  Tekfen;  Finans  Bank;  HSBC  Bank  and 
ING  Bank)  in  Turkey.  Financial  performances  of  a 
bank  is  divided  into  ten  groups  including  Capital 
Ratios,  Balance  Sheet  Ratios,  Assets  Quality, 
Liquidity,  Profitability,  Income-Expenditure 
Structure,  Share  in  Sector,  Share  in  Group,  Branch 
Ratios and Activity Ratios as described by the Banks 
Association of Turkey.