The Beta coefficient of an unlisted bank

The problem that we set ourselves in this work is related to the determination of capital return invested in an unlisted bank, particularly, in a credit cooperative bank. The model that we use is the Capital Asset Pricing Model (CAPM) equation, with its various difficulties in applying it to a category of unlisted activities. The biggest obstacle in using CAPM is given by the Beta determination representing the systematic risk of the units under examination. Therefore, to determine this risk coefficient, we assumed a first step in which we consider a similar sector sample, consists of a portfolio of listed banks, from which we obtain a Business Risk Index (BRI), that we use to go back to unlisted bank Beta under consideration. In a second case, it is thought of a target market constituted by the whole unlisted banks sample of the same sector under analysis, then relating the returns of individual observed banks with average returns provided by this market, we obtain the Regression Beta. A third step, provides the Business Risk Index determination of the sector, in this case obtained from the unlisted banks market, and then to reach to our banks Beta under observation. Comparing the results obtained from this analysis allows us to suggest a quite satisfying line for determining the Beta of an unlisted bank and consequently for its expected return estimation

The capital return of an unlisted bank

The problem to determine the capital cost, in general, is relatively simple, but not trivial. In the particular case of study, related to the capital of an unlisted bank, it is a bit less. In the use of the Capital Asset Pricing Model equation there is a series of obstacles that make its application not so immediate, so the non-triviality of the model. The goal of this work is to use the CAPM equation to give a value to the capital cost invested in an unlisted bank, particularly in a credit cooperative bank. The biggest obstacle is given by the Beta determination that we intend to use, if we refer to unlisted companies, it becomes difficult to determine this coefficient. With the present work we have followed a first step that connects each listed bank returns with the average market returns, market is composed by the listed banks portfolio, so we have obtained a Business Risk Index (BRI) related to these banks. We have started from this index to relevered it on the basis of each unlisted BCC financial structure. In this way we obtain Beta coefficient of this sample. Alternatively, it has been built a basket of unlisted bank returns of the same sector under analysis, thenrelating the returns of individual observed banks with the average returns provided by the banks observed market portfolio, we obtain the regression Beta. At the end we determine a final alternative to assess the Beta values by building a Business Risk Index (BRI) sector obtained from the BCC market. The analysis of the various alternatives used to determine the Beta values, leads to some interesting observations and considerations in the evaluation of the capital return invested in an unlisted bank