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

Abstract

Forecasting plays a major role in financial planningand it is an essential analytical tool in banks’ strategies. In recent years,researchers are developing new techniques for estimation. Financial performanceevaluation of banks is a kind of multi-criteria decision making (MCDM) problemwhich has developed rapidly. It is very important for a firm to monitor a widerange of performance indicators in order to ensure that appropriate and timelydecisions and plans can be made. Suitable performance measures can ensure thatmanagers adopt a long-term perspective and allocate the company’s resources tothe most effective activities. The aim of this study is to evaluate thefinancial performance model of Turkish Banks during 2012-2015 using forecasting(based on 2002-2011 data) methods and multi criteria decision techniques. Asforecasting analysis tools, classical time series methods such as movingaverages, exponential smoothing, Brown's single parameter linear exponentialsmoothing, Brown’s second-order exponential smoothing, Holt's two parameterlinear exponential smoothing and decomposition methods applied to financialratios 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 acase study for the financial performance evaluation of 3 state banks (ZiraatBank, Halk Bank and Vakıflar Bank); 9 private banks (Akbank; Anadolubank;Sekerbank; Tekstil Bank; Turkish Bank; Turk Ekonomi Bank; Garanti Bank; Is Bankand Yapı Kredi Bank) and 5 foreign banks (Denizbank; Eurobank Tekfen; FinansBank; HSBC Bank and ING Bank) in Turkey. Financial performances of a bank isdivided into ten groups including Capital Ratios, Balance Sheet Ratios, AssetsQuality, Liquidity, Profitability, Income-Expenditure Structure, Share inSector, Share in Group, Branch Ratios and Activity Ratios as described by theBanks Association of Turkey.