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

International Journal of Latest Trends in Finance and Economic Sciences, vol.3, no.3, pp.530-555, 2013

26 Pages Posted: 29 Sep 2013 Last revised: 6 Jan 2018

See all articles by Emrah Önder

Emrah Önder

Istanbul University - School of Business - Department of Quantitative Techniques

Ali Hepsen

Istanbul University - Faculty of Business Administration, Department of Finance

Date Written: September 27, 2013

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.

Keywords: Financial Performance Evaluation, Analytical Hierarchy Process (AHP), TOPSIS Method, Turkish Banking Sector, Multi Criteria Decision Making, Forecasting, Time Series Analysis

Suggested Citation

Önder, Emrah and Hepsen, Ali, Combining Time Series Analysis and Multi Criteria Decision Making Techniques for Forecasting Financial Performance of Banks in Turkey (September 27, 2013). International Journal of Latest Trends in Finance and Economic Sciences, vol.3, no.3, pp.530-555, 2013 , Available at SSRN: https://ssrn.com/abstract=2332207

Emrah Önder

Istanbul University - School of Business - Department of Quantitative Techniques ( email )

Istanbul
Turkey

Ali Hepsen (Contact Author)

Istanbul University - Faculty of Business Administration, Department of Finance ( email )

Istanbul
Turkey

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