Kyriaki Kosmidou

Credit risk assessment using a multicriteria hierarchical discrimination approach: A comparative analysis

Corporate credit risk assessment decisions involve two major issues: the determination of the probability of default and the estimation of potential future benefits and losses for credit granting. The former issue is addressed by classifying the firms seeking credit into homogeneous groups representing different levels of credit risk. Classification/discrimination procedures commonly employed for such purposes include statistical and econometric techniques. This paper explores the performance of the M.H.DIS method (Multi-group Hierarchical DIScrimination), an alternative approach that originates from multicriteria decision aid (MCDA). The method is used to develop a credit risk assessment model using a large sample of firms derived from the loan portfolio of a leading Greek commercial bank. A total of 1411 firms are considered in both training and holdout samples using financial information through the period 1994–1997. A comparison with discriminant analysis (DA), logit analysis (LA) and probit analysis (PA) is also conducted to investigate the relative performance of the M.H.DIS method as opposed to traditional tools used for credit risk assessment. 2002 Elsevier Science B.V. All rights reserved.

Assessing profitability factors in the Greek banking system: A multicriteria methodology

The increasing competition in the national and international banking markets, the changeover towards monetary union and the new technological innovations herald major changes in the banking environment, and challenge all banks to make timely preparations in order to enter into the new competitive monetary and financial environment. Therefore, it is interesting to investigate the effectiveness of Greek banks, as it is valued by the financial markets, i.e. the greater the efficacy the higher the competitiveness and vice versa. Taking into consideration the bank assets, we distinguish banks into small and large ones. Finding factors that make the differences in such effectiveness may explain the effective advantage of these two types of financial institutions and help us understand the ‘financial intermediation’ industry in Greece better. Based on their size, a classification of Greek banks, in a multivariate environment, according to the return and operation factors for the years 1990‐1999 takes place. In order to investigate the differences of profitability and efficiency between small and large Greek banks, as well as the factors of profitability and operation related with the size of banks, a multicriteria methodology has been used. The results of this paper may help us determine the key success (or failure) factors of these two categories of Greek banks as well as the responsible banking decision-makers for future readjustments.

Assessing Performance Factors in the UK Banking Sector: A Multicriteria Methodology

Further consolidation takes place not only among UK banks but also across borders, since some banks see size as a key factor in remaining competitive in international markets. Therefore, it is interesting to investigate the effectiveness and performance of UK banks. Based on their assets, banks are distinguished into small and large ones and a classification of UK banks in a multivariate environment for the period 1998–2002 takes place. The PAIRCLAS multicriteria methodology is employed to investigate the performance of UK small and large banks over multiple criteria, such as asset quality, capital adequacy, liquidity and efficiency/profitability. A comparison with discriminant analysis (DA) and logistic regression (LR) facilitates the investigation of the relative performance of PAIRCLAS against them. The results of the study determine the key factors that specify the classification of a bank as small or large and provide us with the responsible banking decision makers for future readjustments.

Foreign versus domestic banks’ performance in the UK: a multicriteria approach

Abstract.Although the banking sector in the UK is one of the most open and it is characterized by an increasing foreign bank presence, it remains relatively under-researched compared to studies for other countries. The objective of this paper is to investigate the performance of the UK banking sector focusing on the performance of the domestic banks as opposed to the performance of the foreign banks in order to test the hypothesis of higher performance of the domestic banks in a developed market. For this purpose, the UTADIS multicriteria methodology is employed to compare domestic and foreign banks’ performance over multiple criteria, such as profitability, liquidity, risk and efficiency, using a data sample covering 26 domestic and 32 foreign banks operating in the UK over the period 1998 to 2001. The results of the study, support the home advantage hypothesis, suggesting that the higher performance of domestic banks compared to foreign banks is also the case in the UK. The most important distinguishing performance factors between the two groups of banks are interest revenue to total earning assets, and profit before taxes to loans plus securities, which are higher for the domestic banks.

Factors influencing the profits and size of Greek banks operating abroad: a pooled time-series study

This paper extends the literature on foreign banking by developing a model that attempts to explain the performance of Greek banks operating abroad using a balanced pooled time-series dataset. Five variables are drawn from the multinational banking literature and represent ownership-specific and location-specific factors. The profits of the subsidiaries operating abroad were found to be related to the profits of the parent bank, the trade between Greece and the host country, the difference in the GDP growth between the two countries, the years operating in the host market and the time trend. The size of the subsidiaries was found to be related to the size of the parent bank, the trade, the GDP growth, the years of operation and the time trend. Furthermore, the results indicate that models developed using variables drawn from the multinational banking literature provide a better description of the size of the subsidiaries of Greek banks operating abroad rather than their profits.

Combining Goal Programming Model With Simulation Analysis For Bank Asset Liability Management

Abstract The aim of this paper is to present an Asset Liability Management (ALM) technique, which combines a goal programming model with a simulation analysis to determine the balance sheet of a bank for the year 2000. To attain this goal, we analyzed the 1999 balance sheet of a Greek commercial bank facing conflicting goals such as returns, liquidity, solvency, and expansion of deposits and loans under uncertainty. An optimizer was embedded in a simulation model to obtain different optimal solutions for a set of interest rate scenarios, while a sensitivity analysis explored the effects of alterations in the order of goal priorities.

Linking profits to asset-liability management of domestic and foreign banks in the UK

This paper employs the statistical cost accounting method on a sample of 36 domestic and 44 foreign banks operating in the UK over the period 1996–2002 to examine the relationship between profits and asset-liability composition. The sample was initially split into high and low profit banks by comparing their operating profit with the industry average. The results show that high profit banks experience considerably lower cost of liabilities for most sources of funding, which can cover any losses from the lower rate of return on assets that they experience compared to their lower profit competitors. The sample was then split into domestic and foreign banks. The operating profit that domestic banks experience appeared to be generated by the loans that they hold on their earning assets portfolio and their fixed assets while the operating profit of foreign banks was generated by all the assets that comprise their portfolios. Turning to liabilities, in both cases customer and short-term funding was found to be more costly than other sources of funding.

Prediction of acquisition targets in the UK: A multicriteria approach

This paper illustrates the use of a multicriteria decision aid technique for the development of a model for the prediction of acquisition targets. A sample of 76 UK firms acquired over the period 2000–2002 matched with 76 non-acquired firms is used to develop a model that discriminates between acquired and non-acquired firms. Back-testing results on the discriminating ability of the model for up to three years prior to acquisition are reported along with a comparison with model developed with other well-known classification techniques, namely discriminant analysis, logistic regression and artificial neural networks. The results indicate that the proposed multicriteria approach is well suited in predicting corporate acquisitions compared to other techniques.

Predicting US commercial bank failures via a multicriteria approach

This paper examines the problem of bank failure and proceeds to the development of bank failure prediction models based on a multicriteria decision technique, namely UTilites Additives DIScriminantes (UTADIS). A sample data of US banks for the years 1993?2003 is used to develop a model that discriminates between the failed and non-failed banks. Although many studies have been developed examining the problem of bank failure prediction, it is the first time that a multicriteria technique is used in this specific field. The obtained results are quite efficient for the evaluation of bank failure, providing errors of 20% grade for at least four years before the failure. Moreover, the results indicate that the multicriteria approach UTADIS outperforms the traditional multivariate data analysis techniques such as discriminant analysis, supporting the fact that the multicriteria techniques could be used efficiently for the bank failure prediction problem.

Bank efficiency estimation and the change of the accounting standards: evidence from Greece

The paper investigates the effect of the changes in the accounting standards on the efficiency estimates of the Greek banks. The paper presents the main changes in the accounting system for the Greek commercial banks with the adoption of IFRS. Using the financial reports of the banks for the years 2004 (prepared in conformity with local GAAP) and 2005 (prepared in conformity with IFRS and including the adjusted to IFRS relevant financial statements of 2004), we investigate the performance of the Greek banking sector. Several efficiency estimates of individual banks are estimated using non-parametric data envelopment analysis (DEA). Specifically, there are three different approaches employed to differentiate how efficiency scores vary with changes in inputs and outputs due to the changes in the accounting system. The differences in the information and performance evaluation are presented and the results are discussed thoroughly.