An integrated framework to assess and improve the financial soundness of private banks

Document Type : Research Note


1 School of Industrial Engineering, College of Engineering, University of Tehran, Tehran, Iran

2 Department of Industrial Engineering and Management Systems, Amirkabir University of Technology, Tehran, Iran


Banks have faced significant challenges due to national economic problems in recent years. There is now a greater need to assess the existing banking system and implement corrective action and strengthening measures. In this paper, financial data of 11 Iranian private banks are examined for 15 different periods and their performance is evaluated using the CAMELS indicator. Expert opinions were used to determine the weights of indicators and ratios, and their final weights were determined using the Best-Worst Method (BWM). Data Envelopment Analysis (DEA) was then used to calculate the efficiency score units (DMUs) and their ranking. Principal component analysis (PCA) was used to validate the DEA results. Several sensitive analyses were conducted on all private banks in Iran to verify their rankings. All 11 Iranian private banks were evaluated through a comprehensive sensitivity analysis, and they were evaluated independently based on the suggested indicators based on their respective performance. The intuitive results of sensitivity analysis were accurate through statistic test. Also, appropriate strategies for improving the performance of the banking system are presented using Strengths-Weaknesses-Opportunities-Threats (SWOT) matrix. Using the results, designers can build more intelligent system CAMELS perspective.