Operational Performance Evaluation On H-branch Of Agricultural Bank Of China

Banking, as an important component of the financial sector, is closely related withthe risk. Modern commercial bank is a machine of risk management, with the deepeningof research for global financial risk management, economic capital, which is becomingmore and more popular, has became the core of bank’s risk and value management. Thesignificance of economic capital management is to enable the bank to achieve the goalsfrom the perspective of risk management: efficient allocation of resources and theoptimal balance between risk and return. We can say that the establishment of theconstraint mechanism of risks and benefits, of which economic capital is the core, andthe intensive development mode have became a common choice for today’s domestic andinternational banks. Since the China Banking Regulatory Commission implemented《Commercial Banks’ Capital Adequacy Ratio Management Approach》in2004,domestic commercial banks actively introduce the concept of economic capital, andgradually establish the capital management, of which economic capital is the core.Economic capital is playing an increasingly important role in bank management.Nowadays, Economic Value Added (EVA) and Risk-Adjusted Return On Capital(RAROC) are widely used in bank management and become the focus of bank’s currentresearch. In this context, this thesis takes a certain second-level branch of AgriculturalBank of China—H branch as the case study object, and evaluates the operationalperformance of H branch based on factors that influence EVA. This thesis firstly givesbrief account of the conditions of H branch and explains the two importantconcepts—EVA and RAROC and also the factors that influence EVA and RAROC. Onthis basis, this thesis takes H branch as an example, through empirical researches onmuch financial data. It analyzes the occupation and uses situation of economic capital inH branch from various perspectives, including product structure, customer structure,guarantee structure and term structure. Besides, this thesis uses different indexes to makevertical and horizontal comparisons between H branch’s profitability and other banks.Using Economic Value Added, Risk-Adjusted Return On Capital and other ratios, thethesis analyzes and compares the capital occupation situation and profitability of eachsubbranch. Through data analysis, though the bank has performed well in some aspects, there exists problems in operational structure and profitability. Therefore, the thesis putsforwards some suggestions, including deepening economic capital awareness, optimizingasset structure, optimizing profit method, balancing short and long term benefits andstrengthening the linkage between departments. The last chapter summarizes the maincontent and emphasizes the importance of economic capital management in banks.