Optimization on the Financial Management of Banks with Two-Stage Goal Programming Model

Abstract

AbstractThe strategic planning is important in bank financial management. The banks and financial institutions have to achieve multiple goals in optimizing asset, liability, equity, earnings, profit and optimum management item. The subjective judgment in assigning weight of the goals is a drawback in financial management of the banks since it may cause inconsistent judgment. In addition, there are no comprehensive studies done on comparison among the banks for benchmarking based on the past studies in optimizing the financial management. Hence, this paper aims to improve the bank financial management by proposing a two-stage goal programming (GP) model to compare and optimize the bank financial management. The proposed model is developed based on entropy method in determining the weight of the goal at the first stage before optimizing the financial management with GP model at the second stage. Four listed banks in Malaysia are investigated in this study. The results indicate that the goal for asset, equity and optimum management item have been achieved by all banks. Furthermore, the target value of asset, equity, earning and profit can be increased according to the optimal solution of the proposed model. The significance of this paper is to provide insights to the banks for further improvement based on the optimal solution of the proposed model.KeywordsEntropyGoal programmingOptimizationFinancial managementPotential improvement