Profitability Indicator for Customers in Corporate Banking

Ukazatel ziskovosti korporátních zákazníků v bankovnictví

Petr Vacek

Český finanční a účetní časopis, 2013, vol. 2013, issue 4, 191-199

Abstract: The article is searching for an appropriate indicator of customer profitability in corporate banking. It points out the advantages and disadvantages of the most common indicator - RAROC. Basel III regulation increases capital requirements which push banks to reassess their approach to profitability measurement. This may make the indicator based on regulatory capital approach (resp. based on risk weighted assets) superior to standard RAROC. Nevertheless, the most relevant disadvantage of RAROC is that all the costs are allocated to the customer regardless of the cause-and-effect allocation principle. It leads to a bias of such indicator and possibly also to improper management decision about customers. This issue can be solved by a modification of RAROC which measures profitability on the level of margin instead of net profit.

Keywords: Profitability indicators; RAROC; Customer profitability; Cause-and-effect allocation; Banking; Ukazatele ziskovosti; Ziskovost zákazníka; Princip příčinné souvislosti; Bankovnictví (search for similar items in EconPapers)
JEL-codes: G21 M21 (search for similar items in EconPapers)
Date: 2013
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DOI: 10.18267/j.cfuc.367

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