Development of a credit limit allocation model for banks using an integrated Fuzzy TOPSIS and linear programming

In this study, a credit risk concentration allocation model is developed for the banks to determine the credit risk concentration limits of their regional head’s. The proposed model is based on the Fuzzy TOPSIS (FTOPSIS) and Linear Programming (LP) approaches. FTOPSIS is easy to use and capable to keep tract of decision made in reaching the overall score by combining different types of criteria. LP combines the results of FTOPSIS and other constraints and objectives determined by the bank. Using FTOPSIS and LP together in the same model brings uniformity and a structure in credit risk concentration decisions of the banks. The developed model is tested with a real case banking application and satisfactory results are obtained. An application is also provided in the paper for illustrative purposes.