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QuestionsCategory: Valuation QuadrantValuating a bank
Jonas asked 5 years ago

Hi Victor, Rusmin,
What are some of the recommended metrics you’d use to valuate a bank? Currently I use the following:

  • P/BV <1
  • RoA > 1.2 
  • Positive OCF
  • Interest Expense / Operating Income

Curious to hear from you what else should we lookout for

Jieren Zheng replied 5 years ago

Just something random, talking from experience with the local banks in Singapore, I have not looked at a bank’s +ve OCF, but PB <1 is only seen in crisis (banks usually trade around PB = 1) and ROA generally stays around 1%.

Victor Chng replied 5 years ago

Great Info!

1 Answers
Victor Chng answered 5 years ago

Hi Jonas,
Currently, Rusmin and I do not have the expertise to analyse bank yet because we have not analyse banks stock before. Please note that what we taught in the Investment Quadrant are not applicable for Banks stocks. On the side note, I know that you have to keep track of the bank non-performing loan ratio when analysing a bank stock.