Valuation of Bank Shares in the Digital Age: A Case Study of a South African Bank

Vusani Moyo and Ayodeji Michael Obadire

Chapter 12 in Digital Banking and Finance:A Handbook, 2025, pp 311-356 from World Scientific Publishing Co. Pte. Ltd.

Abstract: The valuation of bank equity assets is a complex exercise since the operations of banking firms are highly segmented, regulated and digitally inclined. They trade in financial securities whose prices are significantly correlated with wider macroeconomic variables, employ different accounting policies and possess highly leveraged capital structures. This complexity partly explains why the literature on bank valuation is very limited. This study evaluated the suitability and equivalency of the variants of the dividend discount, market multiples, residual income and abnormal earnings growth equity asset valuation models for valuing bank shares in the digital age. The study discusses the variants of these models using FirstRand Limited’s financial data. The multiples valuation models used in the study only require the target firm’s data as input, which makes them more relevant to firm valuation. The equity asset valuation models used in this study yielded similar intrinsic values for FirstRand Limited’s shares, with the 2019 intrinsic values being closer to the bank’s realized share prices. The equity pricing error of the models is also very low. These results confirm the equivalency and suitability of these valuation models for valuing bank shares. Given the rapid pace of technological advancements, the study recommends that analysts integrate scenario analysis to account for potential technological disruptions in valuations. Other practical implications include adaptability, dynamic metrics and incorporating digital assets, enhancing the relevance and reliability of valuation models for digital banking and providing valuable insights to analysts and investors.

Keywords: FinTech; Digital Era; Financial Industry; Digital Technology; Digital Financial Industry; Digital Finance; Financial Inclusion; Bank Stability; Emerging Economies; Bibliometric Analysis; Digital Finance Revolution; Global Impacts; Digital Innovation; Insurance; Big Data Applications; Digital Assets in Disarray; Forecasting Bitcoin; Machine Learning Approach; Economic Policy Uncertainty; Cryptocurrency; Bank Shares; Digital Age; Corporate Governance; Risks; Rewards; Assets Tokenization; Future of Money; Central Bank Digital Currencies; Bank Innovation; Risk-Taking Perspective (search for similar items in EconPapers)
JEL-codes: G1 G2 G24 M41 O3 O32 O33 (search for similar items in EconPapers)
Date: 2025
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