Fuzzy Analytic Network Process with Principal Component Analysis to Establish a Bank Performance Model under the Assumption of Country Risk

In recent years, bank-related decision analysis has reflected a relevant research area due to key factors that affect the operating environment of banks. This study's aim is to develop a model based on the linkages between the performance of banks and their operating context, determined by country risk. For this aim, we propose a multi-analytic methodology using fuzzy analytic network process (fuzzy-ANP) with principal component analysis (PCA) that extends existing mathematical methodologies and decision-making approaches. This method was examined in two studies. The first study focused on determining a model for country risk assessment based on the data extracted from 172 countries. Considering the first study's scores, the second study established a bank performance model under the assumption of country risk, based on data from 496 banks. Our findings show the importance of country risk as a relevant bank performance dimension for decision makers in establishing efficient strategies with a positive impact on long-term performance. The study offers various contributions. From a mathematic methodology perspective, this research advances an original approach that integrates fuzzy-ANP with PCA, providing a consistent and unbiased framework that overcomes human judgement. From a business and economic analysis perspective, this research establishes novelty based on the performance evaluation of banks considering the operating country's risk.

Automated summary

In recent years, research on bank-related decision analysis has become important due to factors influencing the operating environment of banks. This study aims to develop a model that links bank performance to the operating context determined by country risk. The multi-analytic methodology proposed in this study combines fuzzy analytic network process (fuzzy-ANP) with principal component analysis (PCA) to overcome limitations of existing mathematical methods and decision-making approaches. The study demonstrates the significance of country risk in bank performance and offers contributions in terms of methodology and business and economic analysis.