When measuring a bank’s profitability, financial indices such as ROA and net income have some weaknesses. In many cases, these are not only arbitrary indicators, but it is also difficult to eliminate a one-off effect. It turns out that the EVA indicator is more suitable approach to accurately estimate shareholders’value.
We found that Korean banks’ EVAs have improved since 2001, due to after-tax operating profit outperforming the financing cost of capital, but also have shown signs of decline since 2004. This demonstrates a trend that profit before loan provisioning is slowing, although profit scale is increasing, as of recently.
On the surface, from a net income perspective, Korean banks seem to have had no systematic risk between 1993 and 1996, because of a suplus in profit during this time. However, in the same period, EVA has been negative. This indicates that some Korean banks must have experienced an insolvency problem well before the financial crisis of 1997.
Analysis through the EVA approach shows that it is necessary to push ahead with plans for solidifying operational base, growing by off- balance sheet activities, optimizing the labor force, guaranteeing the continuity of corporate governance, and so on for sustained growth.
EVA를 통해 본 은행의 부가가치 제고방안(How to enhance value of the banking firm: Using the Economic Value Added (EVA) approach)
서울 : 한국금융연구원
|Series Title; No||금융조사보고서 / 2008-02|
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Economy < Financial Policy|
|Holding||한국금융연구원; KDI 국제정책대학원|