Application of Topsis Method for Financial Performance Evaluation: A Study of Selected Scheduled Banks in Bangladesh

Abstract

The main objective of our study is to analyze the financial performance of select scheduled banks (namely, the state-owned commercial banks, private commercial banks and foreign commercial banks) in Bangladesh during the period 2000-2013 with the help of TOPSIS (i.e., Technique for Order Preference by Similarity to an Ideal Solution). In the context of banking sector in Bangladesh, the broad classification of ratios/indicators has been done with the help of the methodology of Bangladesh Institute of Bank Management [Bank-Reviews, (2012-2013)]. After computing all category wise ratios/indicators (i.e., profitability and efficiency ratios, size and growth indicators, strength and soundness ratios and asset quality ratios) for all the select nineteen banks during the study period, the weights of the selected ratios/indicators have been calculated with the help of Shannon entropy method. Composite index values of the select banks have been determined on the basis of TOPSIS and from major findings of the present research work it can be concluded that the profitability, efficiency, strength and soundness, size and growth and asset quality positions of foreign commercial banks and private commercial banks are better than those of state-owned commercial banks.

Keywords: Financial Performance, Shannon Entropy, TOPSIS

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