Analysis | Risk-return Analysis for Financial Services: A Case Study On A Sample Of Italian Banks And Their Ability To Reward Risk Capital

TNP Italia conducted a study on the risk capital remuneration capabilites of a sample of Italian banks analyzing performance and capital required (RWAs) by Business Line (Retail Banking, Corporate & Investment Banking, and Wealth Management) to calculate the Risk-Adjusted Performance Indicator (RORAC) based on financial statements from the last three years (2021-2023).

This analysis serves as a starting point for a more detailed riskreturn performance measurement, which can be further refined by product, client subsegment, geographical area, etc., using specific corporate databases.

A Value-Based Management framework, tailored to various levels of granularity, becomes an essential tool for Top Management: it enables more effective allocation of the bank’s risk capital, aligns risk mitigation strategies with shareholder value creation, redirects business plans and redefines commercial strategies while providing an additional metric for risk-reward compensation systems.

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