Bank Performance Analysis : Methodology and Empirical Evidence (Estonian Banking System, 1994-2002)

Banks and other financial institutions are a unique set of business firms whose assets and liabilities, regulatory restrictions, economic functions and operating make them an important subject of research, particularly in the conditions of the emerging financial sectors in the EU accession countries from Central and Eastern Europe (CEE). Banks' performance monitoring, analysis and control needs special analysis in respect to their operation and performance results from the viewpoint of different audiences, like investors/owners, regulators, customers/clients, and management themselves. Some historical notes on the development of the Estonian banking system and the capital structure of banks are presented in this article. Different versions of financial ratio analysis are used for the bank performance analysis using financial statement items as initial data sources. The usage of a modified version of DuPont financial ratio analysis and a novel matrix approach is discussed in the article. Empirical results of the Estonian commercial banking system performance analysis are also presented in the article (1994-2002)