MCDM Approach for Assessment of Financial Performance of Serbian Banks

Abstract

The significance and role of the banking sector for the development of national economy define the need for continuous monitoring of the performance of banks. The banking sector in the Republic of Serbia has undergone considerable changes in recent decades. The contemporaneous trend of liberalization enabled the entry of foreign capital which led to an increase in competition, and the issue of the financial performance of banks got significant attention. Adequate evaluation of banks’ financial performance may provide useful guidelines to bank managers during decision-making. The problem of banks’ financial performance assessment can be defined as a multi-criteria decision-making (MCDM) problem since the bank needs to check and oversee an extensive set of performance indicators. Therefore, MCDM techniques can be a useful tool for the evaluation of the financial performance of banks. In this paper, the financial performance of all banks that operated in the Republic of Serbia during the period from 2012 until 2017 was assessed using an integrated model combining the CRITIC method and the TOPSIS method. The analysis consists of two steps: in the first step, criteria weights are obtained by the CRITIC method while in the second step the ranking is performed using the TOPSIS method.KeywordsCRITIC methodTOPSIS methodFinancial performanceBanks