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Bank valuation with an application to the implicit duration of non-maturing deposits

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  • Jean Dermine

Abstract

The purpose of the 'tutorial' paper is to present a model to value banks. First, three traditional models are summarised briefly. Next, a 'fundamental' bank valuation model is introduced. Based on sound economics and finance principles, it allows to identify the various sources of value and to derive managerial implications, such as the measurement of interest rate risk on non-maturing deposits. A first contribution includes the breakdown of the value of equity into two parts: a liquidation value and a franchise value. A second contribution is to call the attention of the corporate bond market, instead of the equity market, to find adequate risk premium to value banks. The valuation model concerns on-balance sheet banking business, such as deposit taking and lending. Off-balance sheet business, such as advisory services, can be valued with standard corporate finance tools.

Suggested Citation

  • Jean Dermine, 2010. "Bank valuation with an application to the implicit duration of non-maturing deposits," International Journal of Banking, Accounting and Finance, Inderscience Enterprises Ltd, vol. 2(1), pages 1-30.
    • Handle: RePEc:ids:injbaf:v:2:y:2010:i:1:p:1-30
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    Cited by:

    1. Eleftherios Angelopoulos & Antonios Georgopoulos, 2015. "The Determinants of Shareholder Value in Retail Banking During Crisis Years: The Case of Greece," Multinational Finance Journal, Multinational Finance Journal, vol. 19(2), pages 109-147, June.
    2. Vusani Moyo & Ayodeji Michael Obadire, 2024. "A Case Study of Bank Equity Valuation Methods Employed by South African, Nigerian and Kenyan Equity Researchers," Risks, MDPI, vol. 12(6), pages 1-23, May.

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