Applying the n-Based Approach in Management Issues of the Commercial Bank’s Gains in Equity

Author Name(s): Valentina. A. Savinova, Marina G. Sorokina, Victoria V. Khmaruk, Maria E. Konovalova, Alexander M. Mikhailov
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The importance of the issue of forming the commercial bank’s equity is caused by the fact that the decision on gains in equity is based on the principle of calculation and analysis of the initial return on equity, and does not focus on methods for evaluating the prospective return on equity, taking into account its use in the bank’s operating activities. The main purpose of the article is to increase the efficiency of the loan institutions’ activity on the basis of a formalized approach to valuating and managing the commercial bank’ s equity as one of the main criteria for expanding operating activities and increasing the competitiveness of the commercial bank. The results of the research are to expand management methods of the commercial bank’s equity on the basis of the optional method valuating the return on equity, which includes elements of gain and return approaches and takes into account the dynamics of price fluctuations during the commercial bank’s operating activities. Based on Black-Scholes dynamic model, the authors use the method for evaluating the effectiveness of gains in equity in two ways: 1. capitalization due to retained earnings; 2. the secondary issue of shares. The mechanism for choosing the capitalization method of the bank based on the return approach is proposed, which allows identifying the most effective method of getting gains in equity, and later, when managing, developing corrective actions regarding the use of equity in the commercial bank’s operating activities


Commercial Bank, Capital, Return, Model, Option


Establishing a context Against the backdrop of the unstable economic situation, the task of managing equity of financial organizations, including commercial banks, is especially urgent. The main goal of managing equity is to attract and maintain a sufficient amount of equity, which will expand commercial bank’s operational activities and form protection against risks. It should be noted that with the low development of the banking segment in the Russian exchange market, the application of internationally accepted methods for valuing money and controlling the bank’s equity is not possible. Undoubtedly, the efficiency of the commercial bank depends on the choice of methods that are used to getting gains in equity. It is necessary to develop a new tool for managing the bank’s equity, taking into account the long-term development dynamics of the loan institution and investors’ expectations.


The research carried out in the scientific article made it possible to draw a number of theoretical and practical conclusions, which are as follows: – The classification of the main functions of the commercial bank’s equity has been extended – it has been proposed to include the valuation function of equity in the main classification as an effectiveness indicator of managing the bank’s equity (pp. 5-6); – The application of Black-Scholes dynamic model to evaluate the return on the commercial bank’s equity is justified (pp. 8-11); – The parameters of Black-Scholes option model were modified to evaluate the prospective return on equity when it increased due to the allocation of profits in the authorized capital of the commercial bank (pp.11-15); – The most significant financial indicators of the commercial bank have been determined, which affect the change in the exchange shares value, which made it possible to identify dependencies in evaluating the future bank shares value and calculating the value target of the share (pp. 15-18); – The model of the decision making mechanism for increasing the commercial bank’s equity based on the secondary issue of its own shares (pp. 18 – 19); – The mechanism for managing the commercial bank’s equity, which includes valuating and analyzing methods for increasing the bank’s equity, has been proposed (pp. 19 – 20).



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