Assessing Banking Sector Soundness in OECD Countries: A Multi-Criteria Decision-Making Approach

Financial stability and banking sector performance have become critical concerns for policymakers and regulators in the aftermath of global financial crises. This study aims to evaluate the financial soundness of banking sectors across OECD countries by employing an integrated multi-criteria evaluation framework based on Financial Soundness Indicators (FSIs) for the year 2024. The analysis focuses on key dimensions such as profitability, asset quality, capital adequacy, and liquidity conditions. To enhance methodological robustness, objective criterion weights are derived using the Modified Standard Deviation (MSD) and Modified Preference Selection Index (MPSI) methods and then combined within a unified weighting scheme. Country rankings are obtained through the MABAC method, and the stability of the results is further examined using sensitivity analysis. This integrated approach provides a more balanced evaluation by reducing the potential bias associated with relying on a single weighting method. The findings indicate that the ratio of non-performing loans to total gross loans plays a dominant role in differentiating banking sector soundness among OECD economies, highlighting the importance of credit risk and balance-sheet resilience in comparative macroprudential evaluations. In addition, the results reveal relatively distinct performance patterns between countries characterized by stronger capital structures and lower credit risk exposure and those exhibiting comparatively weaker resilience indicators. Overall, the study contributes to the literature by providing a structured and robust framework for comparative banking sector assessment and offers policy-relevant insights for comparative macroprudential monitoring and the assessment of banking sector resilience across OECD countries.