Despite the negative repercussions of global financial crisis, recent survey findings indicate a positive outlook for corporate transactions in the nearest future. Taking into account that the global economy seems to be returning to growth and a new wave of M&A activity in banking sector is predicted, bank valuation issue is on the agenda. The integral part of valuation based on Discounted Cash Flow method is determination of discount rate. The goal of the research is to develop an advanced model for determination a cost of equity (discount rate) for Latvian banks. The theoretical basis for the model is the build-up method. The authors suggest the model of risk premium evaluation to determine the risk of investment into Latvian commercial bank, based on the model, specially designed for emerging markets by Business Valuation Review. Risk index, developed by Hannan and Hanweck, and standard deviation of banks’ ROA are used as criteria for risk evaluation.