Evaluation of performance of Lithuanian commercial banks by multi-objective optimization

Abstract

The aim of this study is to rank the banks registered in Lithuania by Multi-Objective Optimization (MOO). As these banks work in the same macroeconomic environment the objectives are chosen on basis of the CAMEL classification (‘C’ Capital adequacy, ‘A’ Asset quality, ‘M’ Management quality, ‘E’ Earnings, ‘L’ Liquidity). Traditional Cost-Benefit does not respond to these purposes, translating all direct and indirect costs and benefits into money. On the contrary MOO takes care of different objectives, whereas the objectives keep their own units. Different methods exist for the application of MOO. These methods were tested after their robustness. Therefore, MULTIMOORA composed of three sub-methods: Ratio System, Reference Method using the ratios from the ratio system and the Full Multiplicative Form, showed positive results. Consequently registered in Lithuania commercial banks were ranked by MULTIMOORA.