《金融市场与机构 Jeff Madura》ch20.pptVIP

20 Bank Performance Chapter Objectives Identify the factors that affect the valuation of a commercial bank Compare the performance of banks in different size classifications over recent years Explain how to evaluate the performance of banks based on financial statement data Valuation of a Commercial Bank Banks are commonly valued by managers to monitor performance over time and determine the proper mix of services that will maximize the value of the bank Banks are also valued by other financial institutions that are considering an acquisition The value of a bank can be modeled as the present value of future cash flows Valuation of a Commercial Bank Valuation of a Commercial Bank Valuation of a Commercial Bank Economic growth Increases household or business demand for loans Banks move assets from T-bills and other securities to more profitable loans Loan defaults tend to be lower during period of strong economic growth Other financial services provided by commercial banks also experience increases in demand Insurance, brokerage financial planning Valuation of a Commercial Bank Change in the risk-free interest rate Interest rate movements are inversely related to a commercial bank’s cash flows Banks rely on interest-sensitive short-term deposits as a source of funds Bank’s use of funds (such as loans) are less sensitive to interest rates than deposits Valuation of a Commercial Bank Change in industry conditions One of the most important: regulation If regulators reduce constraints, bank’s expected cash flows increase Technological innovation Improves efficiency Level of competition Change in management abilities The only one of the factors within bank’s control Skillful managers enhance a bank’s cash flows Exhibit 20.1 Framework for Valuing A Commercial Bank Valuation of a Commercial Bank Factors that affect the required rate of return by investors:the risk-free rate and the risk premium Investors required rate of return: Valuation of a Commercial Bank Valu