How we value Banks stocks
Model: P/B x ROE Regression
Estimates fair value by finding the statistical relationship between how much investors pay for a bank's book value (P/B) and how efficiently it generates returns (ROE). A bank that earns more on its equity deserves a higher price-to-book multiple. We regress P/B against ROE, NIM, and cost efficiency across all listed Vietnamese banks to find where this bank should trade.
Why this model
Banks earn primarily from net interest margin; book value and ROE are the key drivers of market pricing. Academic research (Wilcox & Philips, P/B-ROE model) confirms that conditioning P/B on ROE significantly improves valuation accuracy for financial institutions.
How it is calculated
Multivariate regression: P/B = a + b1*ROE + b2*NIM + b3*(1/CIR) across all listed banks. The fitted P/B is multiplied by the target bank's book value per share. Outliers are removed via z-score filtering to prevent distressed banks from skewing results.
Best suited to
Commercial banks where book value represents real economic assets and ROE reflects sustainable profitability.