A Composite Indicator Based on Ratios for Banking in Spain Under a Non-compensatory Scheme

  1. Llorent Jurado, Julián 1
  2. Contreras Rubio, Ignacio 1
  3. Guerrero Casas, Flor María 1
  1. 1 Departamento De Economía, Métodos Cuantitativos E Historia Económica, Universidad Pablo De Olavide de Sevilla, España
Journal:
Estudios de economía aplicada

ISSN: 1133-3197,  1697-5731

Year of publication: 2024

Issue Title: New challenges for economy policy: re-globalization vs de-globalization

Volume: 42

Issue: 3

Type: Article

DOI: 10.25115/CBVBXQ93 DIALNET GOOGLE SCHOLAR lock_openOpen access editor

More publications in: Estudios de economía aplicada

Sustainable development goals

Abstract

This paper proposes the construction of a composite indicator based on ratios using a non-compensatory methodology to evaluate the performance of banking institutions. Starting with a selection of nineteen indicators is considered that cover five dimensions—loan quali-ty, capital quality, operating performance, profitability and liquidity—this indicator is designed to indirectly measure the instability of financial institutions. The use of a non-compensatory methodology for the aggregation of individual indicators eliminates the possibility that weaknesses in certain areas are compensated by strengths in others. This proposal is illustrated with data from the main financial entities that operated in the Spanish banking market during 2020, three of which subsequently ceased to exist due to mergers or acquisi-tions. The results show that the entities that disappeared were located in the lower ranks of the classification provided by the indicator.

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