The evaluation of financial stability and soundness of Lithuanian banks

Abstract

The successful development of economy is based on effective and stable performance of commercial banks. The evaluation of stability and soundness of banks is a complex task, involving a considerable number of multidimensional criteria. It is an idiosyncratic task because of a complicated internal business structure of banks, intertwined cash flows and strong influence of market conditions on soundness levels. In this paper, soundness and stability dynamics of commercial banks registered in Lithuania was evaluated by using several multiple criteria methods from simpler ones to the more sophisticated PROMETHEE method. The results obtained indicate that the levels of soundness and stability of banks operating in the developing Lithuanian market of commercial banks noticeably fluctuate. A comparison of the obtained results reveals the causes of the fluctuations. A simultaneous use of different multiple criteria methods for evaluating the soundness and stability of commercial banks increases the robustness of the evaluation.