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An MCDA composite index of bank stability using CAMELS ratios and shannon entropy

Author

Listed:
  • Sabri Boubaker

    (EM Normandie Business School
    Vietnam National University
    Swansea University)

  • Thanh Ngo

    (Massey University
    VNU University of Economics and Business)

  • Aristeidis Samitas

    (Zayed University
    National and Kapodistrian University of Athens)

  • David Tripe

    (Massey University)

Abstract

This study uses the multi-criteria decision-analysis (MCDA) approach to construct a composite performance index (CPI) directly from the CAMELS financial ratios. The CPI has several promising characteristics, such as (i) being an absolute measure of performance that allows for adding or removing data without affecting the existing scores; (ii) employing CAMELS ratios directly in its calculation without the need for normalization or imputation of positive values; (iii) employing the dynamic weighting system of data envelopment analysis (DEA); (iv) providing more robust insights on the Vietnamese banking system under the Shannon entropy approach; and (v) can be an alternative measure of bank stability, compared to the CAMELS ratings and z-scores. Based on a rich dataset of 45 Vietnamese banks spanning from 2002 to 2020, our findings suggest that the proposed CPI could offer an overall view consistent with other approaches for measuring banking sector performance and stability and identifying specific strengths and weaknesses of banks.

Suggested Citation

  • Sabri Boubaker & Thanh Ngo & Aristeidis Samitas & David Tripe, 2025. "An MCDA composite index of bank stability using CAMELS ratios and shannon entropy," Annals of Operations Research, Springer, vol. 353(1), pages 353-376, October.
    • Handle: RePEc:spr:annopr:v:353:y:2025:i:1:d:10.1007_s10479-024-06023-3
    DOI: 10.1007/s10479-024-06023-3
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