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Return on Equity, Cost of Equity and the Implications for Banks

Author

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  • David Norman

Abstract

Returns on equity for the major Australian banks have declined of late, following equity raisings in 2015. At the same time, estimates of the cost of raising new equity appear to have fallen very little, despite large declines in risk-free rates. These two developments help to explain why Australian bank stocks are now trading at a declining, but still sizeable, premium to their book value.

Suggested Citation

  • David Norman, 2017. "Return on Equity, Cost of Equity and the Implications for Banks," RBA Bulletin (Print copy discontinued), Reserve Bank of Australia, pages 51-58, March.
    • Handle: RePEc:rba:rbabul:mar2017-06
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    File URL: https://www.rba.gov.au/publications/bulletin/2017/mar/pdf/bu-0317-6-returns-on-equity-cost-of-equity%20and%20the-implications-for-banks.pdf
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    Cited by:

    1. Anthony Brassil & Jon Cheshire & Joseph Muscatello, 2018. "The Transmission of Monetary Policy through Banks' Balance Sheets," RBA Annual Conference Volume (Discontinued), in: John Simon & Maxwell Sutton (ed.),Central Bank Frameworks: Evolution or Revolution?, Reserve Bank of Australia.
    2. Blandina Walowe Kori & Stephen M. A. Muathe & Samuel Mwangi Maina, 2020. "Financial and Non-Financial Measures in Evaluating Performance: The Role of Strategic Intelligence in the Context of Commercial Banks in Kenya," International Business Research, Canadian Center of Science and Education, vol. 13(10), pages 130-130, October.

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