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Commercial bank valuation using the multiplier method

Vol. 12, Iss. 1, MARCH 2019

Received: 23 July 2018

Received in revised form: 18 August 2018

Accepted: 5 September 2018

Available online: 28 February 2019

Subject Heading: ASSESSMENT AND APPRAISAL ACTIVITIES

JEL Classification: G12, G14

Pages: 90–106

https://doi.org/10.24891/fa.12.1.90

Salmanov O.N. University of Technology (UNITECH), Korolev, Moscow Oblast, Russian Federation
olegsalmanov@yandex.ru

https://orcid.org/0000-0002-5167-748X

Subject The article addresses valuation of commercial banks other than listed companies, using a comparative approach.
Objectives The study aims to find a solution to the problem of rapid and reliable valuation of commercial bank equity capital, using the multiplier method.
Methods I employ the CAPM model and the two-stage dividend discount model, and interpretation of the latter to express the price-earnings and the price-book value multiple to value assets that are not traded publicly. The study draws on regression analysis to establish a connection between multipliers and fundamental indicators for a sample of 50 banks based on the bank's equity rating.
Results The paper offers analytical tools for evaluation of banks as non-tradable assets, presents an approach to estimate the beta coefficient as a regression coefficient of the banking sector index and its adjustment for financial leverage. Furthermore, it states regression dependence of the price-earnings multiplier on the most significant factors of value creation and regression dependence of the price-book value multiplier on profit growth rate and ROE, and establishes statistical confidence of the regressions.
Conclusions The established regression dependence of PE and PBV multipliers enables a comparative analysis of value of banks. Regressions help mitigate differences, in this case through such fundamental indicators as growth rate, beta coefficient and profitability.

Keywords: value, multiplier, comparative approach, bank valuation, banking sector

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