Loan Pricing Of Commercial Bank Based On The Credit Risk Evaluation

Credit loan is one of the key businesses of commercial banks. How to select qualified borrowers and price the loan properly and correctly is an important problem that commercial banks have been facing for many years. For a loan application, commercial banks should firstly screen the customer's credit. Then after choosing appropriate borrowers and deciding to grant loan, the banks can price the credit risk of the loan. Commercial bank's credit screening process, In fact, is the credit risk evaluation process which is the precondition and basis of loan pricing. In addition, only based on credit risk evaluation, the risk of loan can be reflected completely by the price. So, in this paper, we have researched the commercial banks' loan pricing based on the credit risk evaluation. The main ideas and conclusions of this paper are summarized as follows:In the process of loan pricing, credit loss is the most difficult and uncertain factor. Then how to evaluate the credit risk and to involve it in the loan rate is an important topic that commercial banks have been facing in current. Therefore, in this paper, it firstly analyzes the characteristics of credit risk, and gives a general review of research literature about credit risk evaluation and loan pricing. Furthermore, some conditions and hypothesizes which will be utilized in the next chapters are put forward in advance.Loan pricing must be supervised by supervisors and it is known to us that many national supervisors have already begun to plan for the transition from Basel I to Basel II. So, for credit risk management and loan pricing research, comprehending the idea of Basel II well is very important. For the sake of our studies in accordance with ideas of Basel II, in the second chapter, it introduces the key elements of the New Basel Accord. Also, some parameters and modes which will be used in the next chapters are introduced in this chapter.Credit risk evaluation is the precondition and basis of loan pricing. Therefore, in the third chapter, it introduces a multi-dimension index system and research the ordering relation and dominance structure of indexes space for credit. The result indicates that the customer's credit is comparable by using multi-dimension index.Since the customer's credit is comparable by using multi-dimension index, we can classify the customers by their credit rating. In the fourth chapter, it builds a credit evaluation model based on linear programming technique for multidimensional analysis of preference (LINMAP). With this model, we can compare one borrower's credit with other's, and then classify them into respective credit rating. By testing, this method is capable of providing banks with valuable information.According to the result of credit evaluation, commercial banks will price the loan for appropriate borrowers. In the fifth chapter, it puts forward a loan pricing model based on the internal ratings-based approaches (IRB). In this model, the rate can reflect the credit risk by IRB capital charge.Asymmetry information is an important problem of loan market. It will lead to adverse selection and moral hazard, and bring serious hidden danger. In the sixth chapter, a decision-making model of loan is set up. By solving this model, a series of loan contracts can be obtained for every type of borrowers. These contracts will help banks to deal with their problem about adverse selection and moral hazard brought on by asymmetric information.Based on the above researches, and referring to foreign risk management experience, this paper furthermore analyzes the problem of setting up the internal ratings-based and loan pricing system, as well as, the organization and law framework of credit risk management. We hope that the research of this paper is useful for our country's commercial bank.