The Study On Loan Pricing System For Institutional Clients Of National Commercial Banks

The Chinese banking industry will become entirely accessible to the world in 2006. However, it lacks the familiarity in pricing for loan-related products and practical experience and research capability are still in its infancy stage. Since revenues from middle productor of a national commercial bank constitute a small part of its total income. Loan from institutional client, as an key to generate revenue, its pricing is closely related to a bank's profit, competitiveness, and risk. In the fast paced evolution of the interest market, especially after the widening of the floating interest rate spread in 2004, enhancing pricing ability for loans to institutional clients to increase profit has become an important issue to a national commercial bank.First of all, this essay introduces the background of why we should carry out a study on the loan pricing system for institutional clients of a national commercial bank. It indicates that to concentrate on conducting pricing research is to keep pace with the development of free interest market, and implement Basel II which stress risk management. Furthermore, by studying we will realize how to allocate resources and assets reasonably, and achieve the goal of privatizing national commercial banks.Secondly, the essay analyzes the four internationally recognized loan pricing model, namely, Cost plus Loan Pricing model prime rate plus pricing model cost-benefit loan pricing model negotiation pricing model , and develop a fresh model which combines all the advantages of the above named models.Thirdly, based on the credit loan risk assessment system of scientific pricing, make risk analysis by determining what is the industry that client involved, where is their territory, and what kind of product they manufactured. As a result, gathering information for the use of data mining.The fourth part is to rate clients' credibility by classifying clients as well as comprehensively analyzing their contribution, in order to implement price discrimination.The fifth part is to explain the mechanism to evaluate the efficiency of capital management of a national commercial bank through internal capital transfer pricing, and interpret how such a mechanism works towards the loan pricing system.The sixth part is to describe in detail the author's pricing model for institutional clients through the following 4 steps: compute the bottom line for loan interest for institutional clients, find the reasonable interest rate spread, produce a general pricing method for important clients, and enhance pricing management ability. Moreover, the paper provides two examples for empirical study.Finally, it proposes a solution to the banks for enhancing their pricing approach towards institutional clients by way of adopting competitive pricing strategy, building scientific and efficient system for institutional clients, developing a particular team for pricing, and differentiating loan products for the institutional clients.