Introduction Of Economic Value Added, Banks Maximize The Value

The competition among commercial banks becomes more and more fierce for the financial unregulation and globalization. The operational mode for commercial banks has been changed and the financial objectives become more diverse as a result.. In order to evaluate banks' achievement effective and make banks pay more attention to long-term benefit, we should apply the appraisal system, namely Economic Value Added (EVA), which is provided by Stem & Stewart Company. And the creative and managerial processes which is based on EVA for commercial banks were discussed in the term paper.In order to discuss the application of Economic Value Added in commercial banks, the term paper had been divided into seven parts.In the first part, the application of Economic Value Added in modern commercial banks was introduced, therefore the concept and function of EVA were educed. Also it pointed out that the EVA had become the core index in the Performance Appraisal System. EVA is the abbreviation of Economic Value Added, and it was the residual income when all cost had been deducted from total income. As the capital cost had been taken into account, EVA can be said as the true assessment for "Economic Profit" and it becomes the evaluative means for stockholders. As a bran-new management system, EVA appraisal process is more advanced, more apprehensible and more feasible compared to traditional methods. So it had been used widely in most companies.EVA is the net income after the risk adjustment. In order to explain the use of EVA, two important factors - risk cost and capital cost- had been introduced in the second part. By the introduction of the three basic kinds of risk - credit risk, marketable risk and operational risk - and the risk management technique, the influence of risk to commercial banks had been pointed out in the term paper. Capital cost had been introduced thereafter. And both the first and the second parts had laid foundation for the latter parts.In order to max Economic Value Added, commercial banks must increase the income and control the cost. The third and the fourth parts presented the income management and the cost management in detail separately. At the third part, the income structure for our commercial banks was analyzed simply at first. After that some more important components of income management, such as the price making system, the asset and liability management and the rate risk management were discussed. At the fourth part, the structure of cost, the principle for cost control were narrated, too. Among it the Activity-based Costing (ABC) had been addressed in detail.The fifth, the sixth and the last parts in the term paper went into particulars of EVA. In the fifth part the calculation process for EVA were introduced, and it pointed out that the EVA equals the net income minus all cost. In succession, at the sixth part, it indicated that the commercial banks must build the stimulant system based on EVA. And the character of the EVA stimulant system is brought forward. The practical sense of EVA was summarized in the last part . Through the introduction of the problems in commercial banks today, the application of EVA in commercial banks is recommended. With the spread of advanced managerial experience in our country, the maximization of stockholders value will become the final objective to evaluate performance for commercial banks. Therefore, the application of EVA could help commercial banks to add value. At the same time the commercial banks need not copy the EVA system from abroad. They must study the facts and apply the EVA system in practical, then the EVA system can be brought into play better...