On November 6th, 2021, the No.169 online seminar of the “Macro-Finance Salon”, also the 12th of the “Learning the Spirit of the Two Sessions – Finance Supports the Grand Start of the 14th Five-Year Plan” serial salon, jointly organized by the International Monetary Institute (IMI) and the Department of Money and Finance of School of Finance, Renmin University of China (RUC), was successfully held. Wang Jian, Senior Research Fellow, IMI and Chief Analyst of Banking, Guosen Securities Economic Institute, talked about his new release Banking: Basic Logic and Analytical Methods and delivered a presentation entitled “Basic Logic and Analytical Methods of Commercial Banks.” Zeng Gang, Deputy Director, National Institution for Finance & Development and Director, Shanghai Institution for Finance & Development; E Zhihuan, Chief Economist, Bank of China (Hong Kong); Yang Zaiping, Founding Secretary-General, Asia Financial Cooperation Association and Former Deputy President, China Banking Association; and Zhao Xijun, Co-dean, China Capital Market Research Institute, RUC, commented on the presentation. The salon was chaired by Song Ke, Deputy Secretary of CPC, School of Finance, RUC and Deputy Director, IMI, RUC.

Wang Jian first introduced his new release and gave a presentation titled “Basic Logic and Analytical Methods of Commercial Banks,” which unfolded with four prats, namely financial statement analysis, return on equity (ROE) analysis, financial modeling for banks, and bank valuation methods. He proposed that it’s important to infer banks’ real situations from figures in their financial statements. In terms of ROE analysis, he suggested an improved DuPont Analysis. Specifically speaking, figures in each line of a bank’s income statement should be divided by the bank’s average assets, the quotient of which is net income. The net income should first be divided by the bank’s return on assets (ROA) and then multiplied by the equity multiplier, and the product is ROE. He also asserted that the overall operation can be revealed by analysis of each figure because an improved DuPont Analysis discloses the whole operation of banks in a glance. As for financial modeling for banks, he remarked that a variety of methods can be employed to conduct balance sheet forecasting, and that the specific method to be adopted should be determined based on real situations. At last, he noted that the Dividend Discount Model (DDM) and the Free Cash Flow to Equity (FCFE) are the most used valuation models, and that the EVA Discount Model is also employed by banks. Choosing a valuation model is art-like because each approach has its pros and cons. There is no best.

In the discussion session, Prof. Zhao Xijun contended that when valuing a bank, resources that the bank can mobilize, and influence of the bank’s stakeholders should be taken into account considering that banks play a key role in resource allocation. Additionally, relevant regulations and monetary policy should also be factored in. Secretary-General Yang Zaiping remarked that we should first identify banks’ business models and profiting models and be aware of their challenges in cut-throat competition. To explore the basic logic and analytical methods of the banking sector, banks’ business models and profiting models must be examined. Meanwhile, the history of the banking sector should be scrutinized to predict its future development. Dr. E Zhihuan argued that the banking sector’s performance internationally since the outbreak of the COVID-19 pandemic suggests that commercial banks’ profitability is directly influenced by macro-economy. Different degrees of macro-economic downturns in different economies lead to profitability variations in banking because of the cyclical nature of international banking. Prof. Zeng Gang observed that the new release serves as a good guide for understanding real-world bank operation, and shares insights into information disclosure and strategic organization in banking.