The key step is to calculate the discount rate

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It is important to consider:

nuances of using the equity model in bank valuation;

the peculiarity of calculating the risk-free rate for a financial institution;

the possibility and conditions of application of traditional models (in particular, CAPM and the cumulative construction model).

Important to remember! When argentina email list the equity model requires valuing a bank structure, the discount rate is the equity ratio, not the average interest rate by funding source (weighted average cost) used in the corresponding calculations for industrial enterprises.

The risk-free rate, being an integral part of many models, can be derived from the LIBOR rate, which is actively used in the banking sector. It is considered as one of the sources of funding for credit transactions and securities transactions. Similar rates of the interbank lending market of the corresponding maturity in Europe (EURIBOR, LIBOR in various currencies) can become an alternative.

Why shouldn't other approaches be used (yield to maturity of OFZ, OVVZ)? First of all, because the stock market in the Russian Federation is not yet developed enough to make relevant conclusions about the minimum yield of individual financial instruments. But it is necessary to take into account country risk when determining the risk-free rate.

Bank valuation using the income approach

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This element complicates the calculation process, since there is no single base. Different consulting firms involved in compiling ratings use different approaches to forecasting the riskiness of financial investments. It is reasonable to assume that at the current moment the premium for the country risk of the Russian Federation is 3-5%. But each calculation is individual, so the indicator must be determined based on data from several sources.

There is a potential opportunity to use the CAPM model. Most players in the Russian banking market are joint-stock companies, many of which are public. This makes it possible to conduct an IPO with subsequent circulation of shares on domestic and foreign exchanges. But while there are no actual quotes, and the Russian stock market is only developing, the CAPM model remains only a prospect. Therefore, in modern conditions, the value of a Russian commercial bank can only be assessed using the cumulative construction model.

It involves calculating the discount rate by supplementing the risk-free rate with premiums for the insecurity of investing in a particular bank. In this case, there is no need to derive a correction factor, and methodological inconsistencies (arising from the assumptions underlying the CAPM model) are eliminated.

However, the need for expert determination of a number of amendments and their adaptation to Russian conditions are becoming problems that can be solved by conducting appropriate surveys of investors with subsequent preparation of specific practical recommendations for the formation of amendments.