A Multicriteria Decision Framework for Measuring Banks' Soundness around the World

In this paper we use a sample of 894 banks from 79 countries to develop a multicriteria decision aid model, for the classification of banks in three groups on the basis of their soundness. The model is developed with the UTADIS method, through a ten-fold cross-validation procedure using six financial and four non-financial variables. The ratings of Fitch form the basis for assigning banks in the three groups. The results indicate that asset quality (as measured by loan loss provisions), capitalization, and the market where banks operate are the most important criteria (in terms of weights) in classifying the banks. Profitability and efficiency in expenses management are also important attributes, whereas size and listing in a stock exchange are the least important ones. UTADIS achieves higher classification accuracies than discriminant analysis and ordinary logistic regression which are used for benchmarking purposes