Soft computing system for bank performance prediction |
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Affiliation: | 1. The People''s Bank of China (Hangzhou), 149 Yan''an Road, Hangzhou 310001, China;2. Middlesex University Business School, Hendon Campus, The Burroughs, London NW4 4BT, UK;3. Research Department, China Merchants Group, Hong Kong;4. The People''s Bank of China, 32 Chengfang street, Xi Cheng district, Beijing 100800, China |
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Abstract: | This paper presents a soft computing based bank performance prediction system. It is an ensemble system whose constituent models are a multi-layered feed forward neural network trained with backpropagation (MLFF-BP), a probabilistic neural network (PNN) and a radial basis function neural network (RBFN), support vector machine (SVM), classification and regression trees (CART) and a fuzzy rule based classifier. Further, principal component analysis (PCA) based hybrid neural networks, viz. PCA-MLFF-BP, PCA-PNN and PCA-RBF are also included as constituents of the ensemble. Moreover, GRNN and PNN were trained with a genetic algorithm to optimize the smoothing factors. Two ensembles (i) simple majority voting based and (ii) weightage based are implemented. This system predicts the performance of a bank in the coming financial year based on its previous 2-years’ financial data. Ten-fold cross-validation is performed in the training sessions and results are validated with an independent production set. It is demonstrated that the ensemble is able to yield lower Type I and Type II errors compared to its constituent models. Further, the ensemble also outperformed an earlier study P.G. Swicegood, Predicting poor bank profitability: a comparison of neural network, discriminant analysis and professional human judgement, Ph.D. Thesis, Department of Finance, Florida State University, 1998] that used multivariate discriminant analysis (MDA), MLFF-BP and human judgment. |
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