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Financial Performance Analysis of European Banks Using a Fuzzified Self-Organizing Map

Peter Sarlin, Tomas Eklund, Financial Performance Analysis of European Banks Using a Fuzzified Self-Organizing Map. In: Andreas König, Andreas Dengel, Knut Hinkelmann, Koichi Kise, Robert Howlett, Lakhmi Jain (Eds.), Proceedings of the 15th International Conference on Knowledge-Based and Intelligent Information & Engineering Systems (KES'11), 186–195, Springer, 2011.

Abstract:

Due to the recent wave of bank failures, stress tests have been conducted on banks within the European Union. The stress tests, however, only consider the adequacy of a bank’s capital ratios, whereas the general financial performance of individual banks is disregarded. In this paper, we use the Self-Organizing Map (SOM) to perform a visual multidimensional and temporal financial performance analysis of European banks. We address several different problems concerning financial performance analysis. We deal with the problem of selecting suitable financial ratios by performing dimensionality reduction using PCA. We also deal with difficult data using outlier trimming and normalization techniques, and use the SOM for imputing missing values. We use a decision-framework for choosing the final model, based upon a set of map and clustering quality measures. Finally, we implement a second-level fuzzified Ward clustering for visualization purposes and for assessing the crispness of the solution. The result is a visual SOM model for financial performance analysis of European banks.

BibTeX entry:

@INPROCEEDINGS{iSaEk11b,
  title = {Financial Performance Analysis of European Banks Using a Fuzzified Self-Organizing Map},
  booktitle = {Proceedings of the 15th International Conference on Knowledge-Based and Intelligent Information & Engineering Systems (KES'11)},
  author = {Sarlin, Peter and Eklund, Tomas},
  editor = {König, Andreas and Dengel, Andreas and Hinkelmann, Knut and Kise, Koichi and Howlett, Robert and Jain, Lakhmi},
  publisher = {Springer},
  pages = {186–195},
  year = {2011},
  keywords = {financial performance analysis – European banks – visualization – Self-organizing map – fuzzified clustering},
}

Belongs to TUCS Research Unit(s): Data Mining and Knowledge Management Laboratory

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