An integrated framework for predicting the best financial performance of banks: evidence from Egypt

Abstract

Purpose

This study aims to develop and test a framework for integration between data envelopment analysis (DEA) and artificial neural networks (ANN) to predict the best financial performance concerning return on assets and return on equity for banks listed on the Egyptian Exchange, to help managers generate what-if scenarios? For performance improvement and benchmarking.

Design/methodology/approach

The study empirically tested the three-stage DEA-ANN framework. First, DEA was used as a preprocessor of the banks’ efficiency scores. Second, a back-propagation neural network as a multi-layer perceptron-ANN’s model was designed using expected data sets from DEA to learn optimal performance patterns. Third, the superior performance of banks was forecasted.

Findings

The results indicated that banks are not operating under their most productive operations, and there is room for potential improvements to reach outperformance. Moreover, the neural networks’ empirical test results showed high correlations between the actual and expected values, with low prediction errors in both the test and prediction phases.

Practical implications

Based on best performance prediction, banks can generate alternative scenarios for future performance improvement and enabling managers to develop effective strategies for performance control under uncertainty and limited data. Besides, supporting the decision-making process and proactive management of performance.

Originality/value

Despite the growing research stream supporting DEA-ANN integration applications, these are still limited and scarce, especially in the Middle East and North Africa region. Therefore, the study trying to fill this gap to help bank managers predict the best financial performance.

Citation

Mousa, M.E.-S. and Kamel, M.A. (2022), "An integrated framework for predicting the best financial performance of banks: evidence from Egypt", Journal of Modelling in Management, Vol. 17 No. 3, pp. 964-986. https://doi.org/10.1108/JM2-02-2021-0040