Author(s)

Fan Xia

Corresponding Author

Fan Xia

Abstract

RAROC has been introduced into financial institution groups for performance evaluation and risk management, with the increasing of risk awareness in domestic financial institution groups. RAROC in commercial banks is mainly used for capital allocation, risk management, loan pricing, and even performance evaluation. RAROC as an overall performance evaluation method and risk management approach, taking the balance of risk-profit into consideration, has carried out extensive theoretical research in China. Based on the studies of RAROC in performance evaluation, this paper analyses the current application, research extent and problems in performance evaluation of RAROC in commercial banks in China, and puts forward the proposal to improve the system, according to the recent operation of domestic market and financial institution groups.

Keywords

Risk-Adjusted Return on Capital (RAROC), Commercial Banks, Performance evaluation.