Evaluating the financial performance of banks using non-parametric methods (case study of Ardabil Province Agricultural Bank)

Dissertation for Master's Degree

Field: Business Management, Major: Finance

Abstract

The main issue of the research: evaluating the performance of organizations plays a fundamental role in the direction of their future strategic decisions, and due to the importance of this issue, this research deals with it.

The main purpose of the research: The purpose of this research is to evaluate the financial performance of banks using non-parametric methods data) in the agricultural bank of Ardabil province.

The main question of the research: to what extent the relative performance of agricultural banks in Ardabil province can be measured using the non-parametric technique of data envelopment analysis.

The main variables of the research: in this research, financial ratios and variables for performance evaluation include liquidity, asset structure, profitability, capital adequacy. 

Research method: In this research, data coverage analysis method, DEA-TOPSIS combined model was used to evaluate the financial efficiency of bank branches and their ranking. In this method, we will use two virtual decision-making units, A decision-making unit and i decision-making unit, to determine the best and worst relative efficiency of each decision-making unit. We use the two values ??obtained for efficiency with the help of the TOPSIS method to create an index called relative proximity (RC) to the decision-making unit I. This research is applied in purpose or nature. The method of data collection was in the form of document mining.

Statistical population: The size of the statistical population of this research.  

Data collection method: The raw data required for this research is extracted by referring to the financial reports of Ardabil Agricultural Bank branches and through capital market information databases. The models will be implemented through LINGO software.

Key words: liquidity, asset structure, profitability, capital adequacy, data coverage analysis

1- Introduction

Companies have resources that are critical for strong financial performance and competitive advantage. The first type of these resources are tangible assets such as property, machinery, and physical technologies that have substitutes that can be easily bought and sold in open markets. The second type are intangible, valuable, rare, irreplaceable and strategic assets that are capable of creating a competitive advantage and superior financial performance (Namazi and Ebrahimi, 2013).

On the other hand, the development of information and the rapid progress of technology in the last decade has created a huge transformation in all aspects of human life and activities and has caused a movement towards a knowledge-based economy and led to a change in the paradigm governing the industrial economy (Hemti et al., 1389).

Managers should be aware of the financial statements of banks and companies so that they can predict the future of banks and companies and make informed decisions. Therefore, identifying and correctly valuing the financial statements of banks and companies is essential for both the managers and the users of the financial statements, and its importance is increasing day by day (Rahimian et al., 2013). They play an essential role (Bahirai, 2013).

Today, companies are facing stronger competition than in the past, and financial performance is the main goal of any institution. Therefore, every organization wants to increase its financial performance with different methods (Ahmed Khan et al. [1], 2012).

In recent years, competitive advantage has become the focus of competitive strategies. In order to improve performance and face competitors, companies must have competitive advantages so that they can perform better in complex conditions and maintain themselves in the markets. According to the resource-based perspective, the superior performance of companies can come from their unique resources, resource integration, or the ability to respond to the environment. According to this point of view, the difference in the performance of companies is due to the fact that successful organizations have strategic resources (physical, human and organizational) that their competitors lack.

Commercial and specialized banks are financial institutions that collect people's stagnant funds and provide facilities to businessmen, industrial owners and other applicants.In fact, with its operations, the bank provides the means to transfer resources from people who do not want or cannot participate in economic activities due to various reasons such as: lack of knowledge and expertise, lack of capital and fear of investment risk, to people who need financial resources for investment, and since the goal of a commercial bank is to make a profit, it is natural that the bank should attract the resources as cheaply as possible and provide facilities to the applicants with the maximum interest rate. Therefore, the primary and basic goal of the bank, like other for-profit organizations, is to maximize the wealth of its owners. In increasing the wealth of shareholders, the bank's management must decide whether to acquire assets with lower quality and more income, or assets with higher quality and less risk, or whether the bank should invest and grant facilities with long maturities and reduce its liquidity, or choose assets with shorter maturities and provide a high degree of liquidity? These are the questions that bank managers are always involved with (Kirimi, 2015).

Answering the above questions has made the need to evaluate financial performance more important, so that in this way banks can examine their performance in terms of profitability, capital adequacy, asset structure and liquidity compared to competing banks, so that they can assess their position and take measures to improve and improve their performance.

1-3- The importance and necessity of research

Today, companies are facing stronger competition than in the past, and financial performance is the main goal of any organization. So every organization wants to increase its financial performance with different methods (Ahmed Khan et al., 2012).

In recent years, competitive advantage has become the focus of competitive strategies. In order to improve performance and face competitors, companies must have competitive advantages so that they can perform better in complex conditions and maintain themselves in the markets. According to the resource-based perspective, the superior performance of companies can come from their unique resources, resource integration, or the ability to respond to the environment. According to this view, the difference in the performance of companies is due to the fact that successful organizations have strategic resources (physical, human and organizational) that their competitors lack. The results of this research can be used in banks. Also, in the standardization and formulation of accounting standards, one can take a look at this research and, if necessary, use it for the formulation of the standard. In addition, universities and research centers for education and research can be among these, as well as investment companies or brokerages related to the capital market or any investor who can use the research results to make decisions. The evaluation of the performance of agricultural banks in Ardabil province is the subject of this thesis, and as far as we know, no research of this nature has been carried out in the agricultural bank. In terms of the type of study and the place of execution, this research is new.

1-4- The theoretical framework of the research

The theoretical framework is the basis on which all the research is placed. The theoretical framework is a logical, developed, described and complete network between variables that has been provided through processes such as interviews, observation and review of the subject literature (research background) (Khaki, 2017).

There are various methods to evaluate performance, among which efficiency measurement (the method of measuring the ratio of the total value of outputs to the total value of inputs of a unit) can be of effective help in achieving the research goals. Data envelopment analysis is an efficiency measurement method and is used to measure the efficiency of decision-making units that have multiple inputs and multiple outputs. In this method, it is assumed that efficient decision-making units always perform better than inefficient decision-making units.