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It is apparent that based on the information summarised in Table 9 the price earnings ratio and price to book value are the most often used multiples. The price to cash flow multiples are almost never used. It would appear that price to book value is slightly more popular than price to earnings.
Difficulties encountered when valuing
In the last section of the questionnaire the difficulties that respondents faced when valuing banks in emerging markets compared to developed markets were considered. The two issues that appeared to be the most difficult was the difficulty of accessing data and the difficulties in predicting future events. It would appear that the respondents did not feel that the theoretical assumptions of the models gave them difficulty when valuing banks in emerging markets. These findings are summarised in Table 10.
TABLE 10: CHALLENGES ENCOUNTERED WHEN VALUING BANKS IN EMERGING MARKETS Difficulties in accessing data A lack of businesses to compare with
Difficulties in estimating underlying assumptions Predicting future events
Unrealistic theoretical assumptions of models used CONCLUSION AND RECOMMENDATIONS
In this study an attempt was made to understand the literature on the valuation techniques used to value banks in emerging markets. Based on the information gained a questionnaire was drawn up as a first round using the Delphi technique. The information gathered in this questionnaire was summarised.
The study found that it is very important for analysts to perform analysis of the macro-economic, industry and bank specific factors that may affect the value of a bank. Furthermore although the literature is somewhat more divided, the analysts surveyed showed a large preference for the DCF methods. They perceive this method as both more popular and more accurate. The DCF method was found to be used mostly as the primary valuation tool while multiples were generally found to be used as a secondary valuation tool.
Analysts further favoured the Dividend Discount Model and the Equity Discounted Cash Flow models when valuing banks in emerging markets. They normally calculate a terminal value based on a growing perpetuity and interesting enough use different discount rates as the discount rates for the explicit forecast period and for the calculation of the terminal value. Generally they favoured the Price Earnings and Price to book value multiples when using multiples.
Finally the main difficulties when valuing banks in emerging markets compared to those in developed markets was that they found was accessing the necessary data and estimating the underlying assumptions.
This paper has explored the difficulties in valuing banks in emerging markets and found that the techniques themselves seem to function adequately for analysts but that access to information and being able to estimate the future posed great challenges for analysts.
82.35% 35.29% 58.82% 76.47% 29.41%
VALUING BANKS IN EMERGING MARKETS: A REVIEW OF THE LITERATURE AND SOME INITIAL FINDINGS 1025