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RAROC and profit planning
What does RAROC stand for in banking?
RAROC stands for Risk-Adjusted Return on Capital. It measures the return on capital after adjusting for the risks undertaken by a bank or business unit.
What is the full form of RARORAC?
Risk-Adjusted Return on Risk-Adjusted Capital
How is RAROC calculated?
RAROC is calculated as Risk-Adjusted Net Income divided by Economic Capital. The formula is: RAROC = (Revenue – Costs – Expected Losses) / Economic Capital.
What does profit planning in banks primarily focus on?
Setting income, cost, and capital targets for future periods
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