Český finanční a účetní časopis 2013(4):191-199 | DOI: 10.18267/j.cfuc.367

Profitability Indicator for Customers in Corporate Banking

Petr Vacek
Ing. Petr Vacek - doktorand; Katedra manažerského účetnictví, Fakulta financí a účetnictví, Vysoká škola ekonomická v Praze, nám. W. Churchilla 4, 130 67 Praha 3; <petr.vacek@seznam.cz>.

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.
JEL classification: G21, M21

Published: December 1, 2013  Show citation

ACS AIP APA ASA Harvard Chicago Chicago Notes IEEE ISO690 MLA NLM Turabian Vancouver
Vacek, P. (2013). Profitability Indicator for Customers in Corporate Banking. Czech Financial and Accounting Journal, 2013(4), 191-199. doi: 10.18267/j.cfuc.367
Download citation
  • BibTeX (.bib)
  • Bookends (.ris)
  • EasyBib (.ris)
  • EndNote (.enw)
  • EndNote 8 (.xml)
  • ISI WoS (.isi)
  • Medlars (.medlars)
  • Mendeley (.ris)
  • MODS (.xml)
  • Papers (.ris)
  • RefWorks (.txt)
  • RefManager (.ris)
  • RIS (.ris)
  • MS Word (.xml)
  • Zotero (.ris)
    • Open full article

    References

    1. Baer, T. - Mehta, A. - Samadari, H. (2011): The Use of Economic Capital in Performance Management for Banks: A perspective. [on-line], New York, McKinsey Working Papers on Risk č. 4, 2011, [cit. 20. 10. 2013], <http://www.mckinsey.com/client_service/risk/latest_thinking/working_papers_on_risk>.
    2. Drury, C. (2008): Management and Cost Accounting. Hampshire, Cengage Learning EMEA, 2008.
    3. Král, B. aj. (2002): Manažerské účetnictví. Praha, Management Press, 2002.
    4. Payant, W. R. (2006): What´s Corporate Performance Management and How Does It Fit the Banking Industry? Journal of Performance Management, 2006, roč. 19, č. 6, s. 3-13.
    5. Pugliese, M. - Wise, S. (2010): Avoiding a Repeatable History: Using Risk-based Profitability to Help "Run the Business". Journal of Performance Management, 2010, roč. 23, č. 2, s. 49-57.
    6. Ryals, L. J. - Knox, S. (2005): Measuring Risk-Adjusted Customer Lifetime Value and Its Impact on Relationship Marketing Strategy and Shareholder Value. European Journal of Marketing, 2005, roč. 39, č. 5-6, s. 456-472. Go to original source...
    7. Schroeck, G. (2002): Risk Management and Value Creation in Financial Institutions. Hoboken, Wiley, 2002.
    8. Vacek, P. - Šoljaková, L. (2011): Význam rizika při měření ziskovosti produktů a zákazníků - inspirace z bankovního sektoru. Český finanční a účetní časopis, 2011, roč. 6, č. 2, s. 82-92. Go to original source...
    9. Wagner J. (2009): Měření výkonnosti. Praha, Grada, 2009.
    10. Wills, S. aj. (1999): Operational Risk - The Next Frontier. London, British Bankers' Association / International Swaps and Derivatives Association / Pricewaterhouse Coopers / RMA, 1999.

    This is an open access article distributed under the terms of the Creative Commons Attribution 4.0 International License (CC BY 4.0), which permits use, distribution, and reproduction in any medium, provided the original publication is properly cited. No use, distribution or reproduction is permitted which does not comply with these terms.


    Return to the content