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Valuation Standards for Commercial Banks in the Financial Theory and their Analysis

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  • Milan Hrdý

Abstract

This article focuses on bank valuation standards as some recommended steps how to evaluate some concrete commercial bank by the market value. Different approaches, methods and models were analysed and the final recomendations were stated. Basic valuation approaches such as the income approach, the market-based approach and the asset-based approach used for traditional entreprises valuation are recommended also for the commercial banks valuation, but it is necessary to adjust them according to some specifics of banks. After the precise analysis it is possible to recommend the application of Market-Based Valuation or in other words Relative Valuation in the combination with Bond Pricing Model. This is the best choice, but only in case there is some comparable bank or comparable transaction available. In the opposite case it is possible to recommend the application of the income approach based on DDM or DCFE in the combination with Bond Pricing Model or with Excess Return Model. Asset-Based Valuation could be used in case of valuation of different type of bank´s asset or in case of the valuation for accounting or tax purposes. The most important problem lies also in the identification of the coefficient beta that oscillates in case of the large maturity banks according to the "magic one".

Suggested Citation

  • Milan Hrdý, 2018. "Valuation Standards for Commercial Banks in the Financial Theory and their Analysis," Prague Economic Papers, Prague University of Economics and Business, vol. 2018(5), pages 541-553.
    • Handle: RePEc:prg:jnlpep:v:2018:y:2018:i:5:id:661:p:541-553
    DOI: 10.18267/j.pep.661
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    References listed on IDEAS

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    4. Michael R King, 2009. "The cost of equity for global banks: a CAPM perspective from 1990 to 2009," BIS Quarterly Review, Bank for International Settlements, September.
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    More about this item

    Keywords

    valuation; commercial bank; standards models;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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