Bank valuation model 1.0

Description

This model was developed to estimate the potential value of banks in the Republic of Belarus.

Assumptions

As a basis we analysed the market quotations of 25 banks in Eastern Europe. We consider P/BV (bank value / equity) the most relevant metric for these data, and we use ROE (net profit / equity) as an additional metric.

Indicators

We use P/BV and ROE. After discussion we arrived at the following pricing formula:

P = X × BV

where X depends on ROE as follows:

if ROE < 2.5%, X = 0.4

if 2.5% ≤ ROE < 5.0%, X = 0.48

if 5.0% ≤ ROE < 7.5%, X = 0.56

if 7.5% ≤ ROE < 10.0%, X = 0.64

if 10.0% ≤ ROE < 12.5%, X = 0.72

if ROE ≥ 12.5%, X = 0.8

Result

By plugging the values into the formula we can estimate the approximate value of a bank.

Translated from Russian. First published in the “Belarusian Issuers” Telegram channel. Charts and screenshots are in Russian. This is not investment advice.