The Value Assessment of the Commercial Bank

<p>Nechepaev Alexey 41BBA,</p><p>&ldquo;The Value Assessment of the Commercial Bank&rdquo;</p><p>&nbsp;</p><p>Speaking about the Russian banking system, it is on the stage of sustainable growth. Nowadays, the trend for the mergers and acquisitions deals emerges and the problem of evaluating the commercial banks, what affects the value of the bank becomes a controversial area.&nbsp; The aim of the research paper is to assess the value of the bank and to understand what affects the banking profitability, its value. That is why we can point out several tasks which we would work out: find out the models which are widely-used to the value assessment of the bank; to evaluate the commercial bank by chosen models; to determine, which ratios affect the banks&rsquo; profitability and its value.</p><p>The object of the paper is the market value of the commercial bank. The subject is the approaches of the value assessment. As for the structure of the research, it is divided into three parts. In the first part we will get acquainted with the main approaches of value assessment and will point out its&rsquo; main features. As for the second part, we will analyze the financial activity of one of the Russian banks in order to check out the data that we will need while evaluating the value of the bank by different models. Finally, we will make conclusions about the efficiency of these models in Russian banking system. In the third part, an econometric analysis will be introduced and hypotheses will be checked in order to find out the indicators-variables, which affect the value of the banks.</p><p>As a result, by determining the development dynamics of the Russian banking sector and characterizing its main features, we found out the difficulties in the value assessment of the banks, among which are the following: a more strict control of the government, a more complicated accounting, intangible assets which can be hardly monitored.</p><p>There are three main models in the assessment of the banks: income, cost and comparative approaches. Sberbank was chosen in order to check the efficiency of the models. While making a research, we made a conclusion that the value of the bank using free cash flow and option pricing models is approximately the same. The same thing cannot be said about the comparative approach. The problem is that there are no market analogues of Sberbank, that is why we chose VTB to be the compared bank, because it has roughly the same amount of assets and the financial activity results of these two banks are quite similar. However, the estimate of Sberbank by this method was inconsistent due to the distinction of the stock quotations. As for the cost approach, we had no enough useful information to count the assets and the liabilities of the bank.</p><p>Speaking about the econometric analysis, we created a model with ROE as the dependent variable and four independent variables: capital adequacy indicator, financial leverage, net interest margin and the ratio of the instant or quick liquidity. Further we tested our hypotheses and got the following results: the hypothesis about the inverse relationship of the leverage, capital adequacy with the return on equity is accepted; net interest margin positively affects the return on equity; instant liquidity has an inverse relationship with the ROE. Due to the fact that the Return on equity is highly correlated with the Price to book value ratio, we may say that our results affect the value of the commercial bank.</p><p>&nbsp;</p><p>&nbsp;</p><p>&nbsp;</p><p>Email: <a href="mailto:nechep92@mail.ru">nechep92@mail.ru</a></p><p>Phone number: +7-916-436-29-70</p>