Asset and liability management optimization through economic value added (EVA)

What it is about

Rupesh Tailor, CEO of Everest Research, presented at the Fourth Annual Risk Conference (September 17, 2026) how to optimize a bank balance sheet to maximize economic value added (EVA). The presentation is in English.

The 30 slides define EVA as profit measured after all costs, including the cost of capital, and present it as an extension of funds transfer pricing. They explain how the cost of equity and the required capital are built, summarize the results obtained with 23 banking clients, analyze three cases (Metro Bank, Barclays and Nordea) and close with a numerical example of a 100 billion pound balance sheet that is optimized while respecting regulatory and liquidity limits.

Objectives

• Define EVA and explain why managing the balance sheet to maximize it aligns risk, capital and profitability.
• Show how the price of a loan can include expected loss, options, expenses, taxes and cost of capital.
• Illustrate with cases and a numerical example the management actions that raise EVA without breaking the constraints.

Key takeaways

1. EVA equals net operating profit after tax minus the cost of equity multiplied by the required common equity tier 1 capital (CET1); it thus captures risk, capital and their cost.
2. Balance sheet optimization seeks the best set of assets and liabilities subject to regulatory and internal constraints, instead of treating each business decision separately.
3. Actions to raise EVA include shifting to higher-yielding loans, reducing more expensive funding sources, charging for contingent liquidity risk and reducing required capital through synthetic risk transfers or non-performing loan disposals.
4. Across 23 banking clients, EVA increased in every case and ROE rose by 3.0 percentage points on average.
5. In the numerical example, EVA rises 55% after optimization and all capital, leverage, liquidity and interest rate risk constraints are met.