Hierarchical system of commercial banks ranking

Abstract

Introduction. The main objective of the study is to develop economic and mathematical tools for constructing a rating barometer of Russian commercial banks according to the level of sustainability in a long term view using a hierarchical decision-making structure. Theoretical analysis. The method of commercial banks’ integral ranking is based on a system of hierarchical analysis. The methodology is based on ranking indicators and dividing them into subgroups. The priority indicator indicates the ranking vector, two levels of data ranking are performed, and subindices are formed. At the last stage, a convolution into an integral index is performed. The mathematical apparatus of a tree-like solution structure is used; the assumption of the method is the choice of priority indicators based on the principle of a commercial bank’s long-term sustainability. Empirical analysis. An algorithm has been compiled for condensing primary financial reporting indicators into an integral indicator. The methodology was tested on data from Russian commercial banks. Results. A mathematical apparatus is presented that makes it possible to assess the long-term financial stability of commercial banks according to their key indicators, an integral rating of banks is constructed for financial stability and investment attractiveness. The hierarchical rating system of commercial banks developed by the authors characterizes the analyzed banks by the size of the bank’s own funds, capital structure and return on equity.