Modeling Goodwill For Commercial Banks

Bank as a special enterprise dealing with financial product, which long termly,steadily exists goodwill. As we adopt the traditional assess method such as " law of prospective earnings ", "annuity current value valuate law " and " excess income capitalize law " to evaluate goodwill in banks. We must assess discount rate,discount period and income flows of the enterprise. But above-mentioned three indexes rely heavily on subjective judgement of the person .The conclusion drawn by the persons who assess may differ greatly .According to banking's accounting rule, the intangible assets can be recognized clearly, so banking value source of goodwill can be confirmed , and bank's goodwill is hided among the difference between bank enterprise market value and book value. This paper uses the residual income valuation technique outlined in Feltham and Ohlson [1996] to examine goodwill for a prototypical banking firm. By adopting the accounting data and setting up econometrics model directly, we use the linear multidate information model, and limit the excess surplus , operating assets ,other information, and relevant parameter value.While modeling sample is confirmed , the subjective intervention does not exists in the whole evaluation process.The real example result is more objective.This thesis based on the residual income approach. It first divide bank into deposit taking model and lending model, then amalgamate these two into one typical modeling goodwill for banks. Modeling goodwill depends on loan level , deposit level, net loan , net deposit, nonperfomed loan and fee income these six variables in the model. This text examines the real example of five listing banks in China for the first time, and draw the relevant conclusion.