Application Of Multiple Discriminant Analysis For Assessing Commercial Banks

Abstract:     
This paper conducts multiple discriminant analysis on a sample of 58 commercial banks for which the IBCA provides ratings over a two-year period. Hence, the sample consists of 116 observations. Employing 15 ratios, the multiple discriminant analysis misclassifies eight of 52 low-rated banks (Type I error) and eight of 64 high-rated banks (Type II error). Over 86 percent of both groups are classified correctly. The author concludes that this type of analysis could be useful in the evaluation of commercial banks in the Czech Republic, since the results of this test display a relatively high degree of accuracy.

JEL Classification: C39

working papers series