What it is
Book value per share is the accounting worth of one share. P/B asks how much more (or less) than that the market will pay.
For banks P/B is a favourite yardstick because loans, bonds and cash are recorded close to their true value, so book value means something. A bank with higher ROE deserves a higher P/B: it earns more on each rupee of book.
P/B below 1 means the market values the bank below its accounting equity, often because it doubts the loan book or sees low returns ahead.
Use book value per ordinary share. A bank with preference shares reports net worth per share on its ordinary shares, and so should the P/B.
How it is calculated
P/B = Market price per ordinary share ÷ Book value per ordinary share, where Book value per share = Equity attributable to ordinary shareholders ÷ Ordinary shares.
Worked on Nabil Bank Limited, FY 2082/83 Q4
NABIL's book value per share of about Rs 247.28 at a market price of Rs 534.90 gives a P/B of about 2.16.
NABIL's share capital includes Rs 500.00 crore of preference shares, so per-share figures here use its 27,05,69,970 ordinary shares, as the filing does.
What good looks like
Compare with the sector median and with the bank's ROE. A rule of thumb from valuation textbooks: P/B should roughly track ROE ÷ required return, so a bank with twice the ROE of peers can justify a higher P/B.
Watch out
- Book value includes locked reserves and fair value swings.
- A low P/B on a bank with high NPL and low cover may reflect hidden losses, not a bargain.
- Bonus shares change price and book value per share together; P/B is unaffected.
- Where a bank has preference shares, book value per share must be per ordinary share, or the P/B is understated.
In Nepal
A Punji / textbook tool, not regulation. Nepali filings print 'Net worth per share' which is the denominator.
Sources
Questions
Mostly because of different returns on equity and different confidence in their loan books.
Sometimes. It can also mean the market doubts the loan book or expects low returns. Check NPL, cover and ROE first.