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Profitability Prediction of Turkish Banking Industry: A Comparative Analysis with Data Science and Fuzzy ANP

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Data Science and Multiple Criteria Decision Making Approaches in Finance

Part of the book series: Multiple Criteria Decision Making ((MCDM))

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Abstract

In this study, it is aimed to estimate the factors affecting the profitability of the Turkish banking sector. For this purpose, 34 different variables were firstly determined by literature review. Then, with the help of decision trees method, the most important 8 variables were selected. These variables were also evaluated with fuzzy ANP approach. As a result, it is understood that the foreign exchange position is the most important variable for the profitability of the Turkish banking sector. Based on this result, it is recommended that Turkish banks take some actions to minimize the currency exchange rate risk. In this context, it is considered that financial derivative products will help the management of this mentioned risk.

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Author information

Authors and Affiliations

  1. Kavacık South Campus, Istanbul Medipol University, Istanbul, Turkey

    Gökhan Silahtaroğlu

  2. School of Business, Istanbul Medipol University, Istanbul, Turkey

    Hasan Dinçer

  3. Business and Management, Istanbul Medipol University, Istanbul, Turkey

    Serhat Yüksel

Authors
  1. Gökhan Silahtaroğlu
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  2. Hasan Dinçer
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  3. Serhat Yüksel
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Appendices

Appendix 1

Key Terms and Definitions

ANP::

Analytical Network Process

DC::

Domestic Currency

FX::

Foreign Currency

Appendix 2

4.1.1 Analysis Details of Decision Tree Approach

4.1.1.1 Analysis for 2017

$2015 Interest Income/Total Revenues$ <= 19.345237038957485 AND $2016 Average Return on Equity$ <= 14.367034148529822 => “Bin 4”

$2014 Interest Income/Total Assets$ <= 2.388168549834992 AND $2016 Consumer Loans/Total Loans and Receivables *$ <= 16.4 AND $2016 Non-Interest Income (Net)/Other Operating Expenses$ <= 161.352849651359 AND $2015 Interest Income/Total Revenues$ > 19.345237038957485 AND $2016 Average Return on Equity$ <= 14.367034148529822 => “Bin 3”

$2014 Interest Income/Total Revenues$ <= 65.60039310568996 AND $2016 Average Return on Equity$ <= 8.441450080924444 AND $2014 Interest Income/Total Assets$ > 2.388168549834992 AND $2016 Consumer Loans/Total Loans and Receivables *$ <= 16.4 AND $2016 Non-Interest Income (Net)/Other Operating Expenses$ <= 161.352849651359 AND $2015 Interest Income/Total Revenues$ > 19.345237038957485 AND $2016 Average Return on Equity$ <= 14.367034148529822 => “Bin 2”

$2014FX Assets/FX Liabilities$ <= 55.03965014196105 AND $2014 Interest Expenses/Total Expenses$ <= 70.70673741221977 AND $2014 Interest Income/Total Revenues$ > 65.60039310568996 AND $2016 Average Return on Equity$ <= 8.441450080924444 AND $2014 Interest Income/Total Assets$ > 2.388168549834992 AND $2016 Consumer Loans/Total Loans and Receivables *$ <= 16.4 AND $2016 Non-Interest Income (Net)/Other Operating Expenses$ <= 161.352849651359 AND $2015 Interest Income/Total Revenues$ > 19.345237038957485 AND $2016 Average Return on Equity$ <= 14.367034148529822 => “Bin 2”

$2014FX Assets/FX Liabilities$ > 55.03965014196105 AND $2014 Interest Expenses/Total Expenses$ <= 70.70673741221977 AND $2014 Interest Income/Total Revenues$ > 65.60039310568996 AND $2016 Average Return on Equity$ <= 8.441450080924444 AND $2014 Interest Income/Total Assets$ > 2.388168549834992 AND $2016 Consumer Loans/Total Loans and Receivables *$ <= 16.4 AND $2016 Non-Interest Income (Net)/Other Operating Expenses$ <= 161.352849651359 AND $2015 Interest Income/Total Revenues$ > 19.345237038957485 AND $2016 Average Return on Equity$ <= 14.367034148529822 => “Bin 1”

$2014 Interest Expenses/Total Expenses$ > 70.70673741221977 AND $2014 Interest Income/Total Revenues$ > 65.60039310568996 AND $2016 Average Return on Equity$ <= 8.441450080924444 AND $2014 Interest Income/Total Assets$ > 2.388168549834992 AND $2016 Consumer Loans/Total Loans and Receivables *$ <= 16.4 AND $2016 Non-Interest Income (Net)/Other Operating Expenses$ <= 161.352849651359 AND $2015 Interest Income/Total Revenues$ > 19.345237038957485 AND $2016 Average Return on Equity$ <= 14.367034148529822 => “Bin 2”

$2016 Average Return on Equity$ > 8.441450080924444 AND $2014 Interest Income/Total Assets$ > 2.388168549834992 AND $2016 Consumer Loans/Total Loans and Receivables *$ <= 16.4 AND $2016 Non-Interest Income (Net)/Other Operating Expenses$ <= 161.352849651359 AND $2015 Interest Income/Total Revenues$ > 19.345237038957485 AND $2016 Average Return on Equity$ <= 14.367034148529822 => “Bin 2”

$2016 Consumer Loans/Total Loans and Receivables *$ > 16.4 AND $2016 Non-Interest Income (Net)/Other Operating Expenses$ <= 161.352849651359 AND $2015 Interest Income/Total Revenues$ > 19.345237038957485 AND $2016 Average Return on Equity$ <= 14.367034148529822 => “Bin 3”

$2016 Non-Interest Income (Net)/Other Operating Expenses$ > 161.352849651359 AND $2015 Interest Income/Total Revenues$ > 19.345237038957485 AND $2016 Average Return on Equity$ <= 14.367034148529822 => “Bin 4”

$2016 Average Return on Equity$ > 14.367034148529822 AND TRUE => “Bin 4”

4.1.1.2 Analysis for 2016

$2014 Average Return on Equity$ <= 7.383781622399939 AND $2014FX Liquid Assets/FX Liabilities$ <= 77.63274459617332 AND $2007 Average Return on Equity$ <= 11.95 AND $2015FX Assets/Total Assets$ <= 60.59754431342453 AND $2015 Average Return on Equity$ <= 14.494905011653533 => “Bin 1”

$2014 Average Return on Equity$ > 7.383781622399939 AND $2014FX Liquid Assets/FX Liabilities$ <= 77.63274459617332 AND $2007 Average Return on Equity$ <= 11.95 AND $2015FX Assets/Total Assets$ <= 60.59754431342453 AND $2015 Average Return on Equity$ <= 14.494905011653533 => “Bin 2”

$2014FX Liquid Assets/FX Liabilities$ > 77.63274459617332 AND $2007 Average Return on Equity$ <= 11.95 AND $2015FX Assets/Total Assets$ <= 60.59754431342453 AND $2015 Average Return on Equity$ <= 14.494905011653533 => “Bin 2”

$2007 Average Return on Equity$ > 11.95 AND $2015FX Assets/Total Assets$ <= 60.59754431342453 AND $2015 Average Return on Equity$ <= 14.494905011653533 => “Bin 3”

$2015FX Assets/Total Assets$ > 60.59754431342453 AND $2015 Average Return on Equity$ <= 14.494905011653533 => “Bin 2”

$2015 Average Return on Equity$ > 14.494905011653533 AND TRUE => “Bin 4”

4.1.1.3 Analysis for 2015

$2014 Other Operating Expenses/Total Operating Income$ <= 48.38778402624213 AND $2014 Average Return on Equity$ <= 6.772859109446015 => “Bin 2”

$2014 Interest Expenses/Total Expenses$ <= 0.06698594402087821 AND $2014 Other Operating Expenses/Total Operating Income$ > 48.38778402624213 AND $2014 Average Return on Equity$ <= 6.772859109446015 => “Bin 2”

$2014 TL Liquid Assets/Total Assets$ <= 2.791840685802903 AND $2014 Interest Expenses/Total Expenses$ > 0.06698594402087821 AND $2014 Other Operating Expenses/Total Operating Income$ > 48.38778402624213 AND $2014 Average Return on Equity$ <= 6.772859109446015 => “Bin 2”

$2013FX Liabilities/Total Liabilities$ <= 55.5 AND $2014 TL Liquid Assets/Total Assets$ > 2.791840685802903 AND $2014 Interest Expenses/Total Expenses$ > 0.06698594402087821 AND $2014 Other Operating Expenses/Total Operating Income$ > 48.38778402624213 AND $2014 Average Return on Equity$ <= 6.772859109446015 => “Bin 1”

$2013FX Liabilities/Total Liabilities$ > 55.5 AND $2014 TL Liquid Assets/Total Assets$ > 2.791840685802903 AND $2014 Interest Expenses/Total Expenses$ > 0.06698594402087821 AND $2014 Other Operating Expenses/Total Operating Income$ > 48.38778402624213 AND $2014 Average Return on Equity$ <= 6.772859109446015 => “Bin 2”

$2014 Liquid Assets/Short Term Liabilities$ <= 32.89545318389918 AND $2014 Average Return on Equity$ > 6.772859109446015 => “Bin 1”

$2011 (Net Balance Sheet Position + Net Off-Balance Sheet Position)/Shareholders’ Equity$ <= −5.3 AND $2014 TL Liquid Assets/Total Assets$ <= 33.941827728460524 AND $2014 Interest Expenses/Total Expenses$ <= 67.3570673080648 AND $2014 TL Liquid Assets/Total Assets$ <= 55.16002295728003 AND $2014 Average Return on Equity$ <= 13.94158208020286 AND $2014 Liquid Assets/Short Term Liabilities$ > 32.89545318389918 AND $2014 Average Return on Equity$ > 6.772859109446015 => “Bin 2”

$2007 Interest Income/Total Assets$ <= 9.3 AND $2011 (Net Balance Sheet Position + Net Off-Balance Sheet Position)/Shareholders’ Equity$ > −5.3 AND $2014 TL Liquid Assets/Total Assets$ <= 33.941827728460524 AND $2014 Interest Expenses/Total Expenses$ <= 67.3570673080648 AND $2014 TL Liquid Assets/Total Assets$ <= 55.16002295728003 AND $2014 Average Return on Equity$ <= 13.94158208020286 AND $2014 Liquid Assets/Short Term Liabilities$ > 32.89545318389918 AND $2014 Average Return on Equity$ > 6.772859109446015 => “Bin 2”

$2007FX Assets/Total Assets$ <= 37.05 AND $2008 Interest Income/Total Assets_1$ <= 8.15 AND $2007 Interest Income/Total Assets$ > 9.3 AND $2011 (Net Balance Sheet Position + Net Off-Balance Sheet Position)/Shareholders’ Equity$ > −5.3 AND $2014 TL Liquid Assets/Total Assets$ <= 33.941827728460524 AND $2014 Interest Expenses/Total Expenses$ <= 67.3570673080648 AND $2014 TL Liquid Assets/Total Assets$ <= 55.16002295728003 AND $2014 Average Return on Equity$ <= 13.94158208020286 AND $2014 Liquid Assets/Short Term Liabilities$ > 32.89545318389918 AND $2014 Average Return on Equity$ > 6.772859109446015 => “Bin 3”

$2007FX Assets/Total Assets$ > 37.05 AND $2008 Interest Income/Total Assets_1$ <= 8.15 AND $2007 Interest Income/Total Assets$ > 9.3 AND $2011 (Net Balance Sheet Position + Net Off-Balance Sheet Position)/Shareholders’ Equity$ > −5.3 AND $2014 TL Liquid Assets/Total Assets$ <= 33.941827728460524 AND $2014 Interest Expenses/Total Expenses$ <= 67.3570673080648 AND $2014 TL Liquid Assets/Total Assets$ <= 55.16002295728003 AND $2014 Average Return on Equity$ <= 13.94158208020286 AND $2014 Liquid Assets/Short Term Liabilities$ > 32.89545318389918 AND $2014 Average Return on Equity$ > 6.772859109446015 => “Bin 4”

$2008 Interest Income/Total Assets_1$ > 8.15 AND $2007 Interest Income/Total Assets$ > 9.3 AND $2011 (Net Balance Sheet Position + Net Off-Balance Sheet Position)/Shareholders’ Equity$ > −5.3 AND $2014 TL Liquid Assets/Total Assets$ <= 33.941827728460524 AND $2014 Interest Expenses/Total Expenses$ <= 67.3570673080648 AND $2014 TL Liquid Assets/Total Assets$ <= 55.16002295728003 AND $2014 Average Return on Equity$ <= 13.94158208020286 AND $2014 Liquid Assets/Short Term Liabilities$ > 32.89545318389918 AND $2014 Average Return on Equity$ > 6.772859109446015 => “Bin 4”

$2014 TL Liquid Assets/Total Assets$ > 33.941827728460524 AND $2014 Interest Expenses/Total Expenses$ <= 67.3570673080648 AND $2014 TL Liquid Assets/Total Assets$ <= 55.16002295728003 AND $2014 Average Return on Equity$ <= 13.94158208020286 AND $2014 Liquid Assets/Short Term Liabilities$ > 32.89545318389918 AND $2014 Average Return on Equity$ > 6.772859109446015 => “Bin 2”

$2014 Interest Expenses/Total Expenses$ > 67.3570673080648 AND $2014 TL Liquid Assets/Total Assets$ <= 55.16002295728003 AND $2014 Average Return on Equity$ <= 13.94158208020286 AND $2014 Liquid Assets/Short Term Liabilities$ > 32.89545318389918 AND $2014 Average Return on Equity$ > 6.772859109446015 => “Bin 4”

$2014 TL Liquid Assets/Total Assets$ > 55.16002295728003 AND $2014 Average Return on Equity$ <= 13.94158208020286 AND $2014 Liquid Assets/Short Term Liabilities$ > 32.89545318389918 AND $2014 Average Return on Equity$ > 6.772859109446015 => “Bin 4”

$2011 Total Revenues/Total Expenses$ <= 130.60000000000002 AND $2014 Average Return on Equity$ > 13.94158208020286 AND $2014 Liquid Assets/Short Term Liabilities$ > 32.89545318389918 AND $2014 Average Return on Equity$ > 6.772859109446015 => “Bin 2”

$2011 Total Revenues/Total Expenses$ > 130.60000000000002 AND $2014 Average Return on Equity$ > 13.94158208020286 AND $2014 Liquid Assets/Short Term Liabilities$ > 32.89545318389918 AND $2014 Average Return on Equity$ > 6.772859109446015 => “Bin 4”

Table 4.8 Pair-wise comparison matrix for all criteria
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Table 4.9 Inner dependence matrix of the criteria with the respect to criterion 1
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Table 4.10 Inner dependence matrix of the criteria with the respect to criterion 2
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Table 4.11 Inner dependence matrix of the criteria with the respect to criterion 3
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Table 4.12 Inner dependence matrix of the criteria with the respect to criterion 4
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Table 4.13 Inner dependence matrix of the criteria with the respect to criterion 5
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Table 4.14 Inner dependence matrix of the criteria with the respect to criterion 6
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Table 4.15 Inner dependence matrix of the criteria with the respect to criterion 7
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Table 4.16 Inner dependence matrix of the criteria with the respect to criterion 8
Full size table

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Silahtaroğlu, G., Dinçer, H., Yüksel, S. (2021). Profitability Prediction of Turkish Banking Industry: A Comparative Analysis with Data Science and Fuzzy ANP. In: Data Science and Multiple Criteria Decision Making Approaches in Finance. Multiple Criteria Decision Making. Springer, Cham. https://doi.org/10.1007/978-3-030-74176-1_4

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