Efficiency Measurement Of The Commercial Banks-A EVA Approach

Since China’s accession to the WTO, Chinese commercial banks through reforming the organization system and expanding asset scale, have achieved a great and profound internal change. However, Chinese commercial banks still carry on traditional development mode and management system compared with advanced foreign banks. Now, in order to meet the enormous challenges from foreign banks, Chinese commercial banks must constantly optimize the asset quality and improve operation efficiency, and establishing an effective performance evaluation system becomes the starting point of all the problems.As a new kind of performance evaluation methods, compared to the traditional performance evaluations, EVA fully considers the cost of equity capital of commercial banks, which is also the risk-adjusted cost. At present in the developed countries, more than 400 companies have implemented economic value added (EVA), and has got a huge success, including Coca-Cola, Siemens, the U.S. postal service, Citibank, Sony, etc.This paper was mainly divided into six chapters:The first chapter briefly explains the background, significance, related theory and research method.The second chapter first theoretically explains after-tax profit, net assets yield, earnings per share, PE ratio, Du Pont financial analysis, residual income, the balanced scorecard, then, the author reveals traditional performance evaluation method cannot connect the operator’s interests and shareholder’s wealth, thus, under this backgrounds, EVA arises at the historic moment.The third chapter introduces EVA method, such as the concept, formula of calculation, adjustment project, common adjustments generally includes research and development spending, inventory valuations, goodwill, deferred taxes, intangible assets, the depreciation, foreign currency, guarantees and provision for bad debts.The fourth chapter constructs the performance evaluation system with EVA as the core and designs incentive mechanism based on EVA. This chapter first expounds the background that Chinese commercial banks introduced the EVA, then, introduce concept, measurement and distribution on economic capital. Then, the author tries to build commercial bank’s performance evaluation system on EVA, in the process, commercial bank’s organizational levels is divided into:head office, branch office, responsibility centers and products centers. Finally, the author expounds commercial bank’s incentive mechanism on the total incentive system and employees’incentive system.The fifth chapter adopts empirical analysis methods. The author selects four banks as sample, according to annual data of 2009, to evaluate the performance of the four banks through REVA and EVA. Meanwhile, by comparing EVA and REVA with net profit and net assets yield, the author hopes to proof the superiority of EVA.The sixth chapter puts forward:first, Chinese commercial bank must adhere to adopt EVA to evaluate performance. Second, Chinese commercial bank must strengthen the management of economic capital. Third, we need to accelerate the construction of information system.At present, there exists much difference between Chinese commercial bank and the operating environment of EVA. But as long as Chinese commercial bank insists on reforming and creating opportunities, the author believes that EVA management will bring more advantages to Chinese commercial banks.