Research On Commercial Bank Loans Risk Pricing Model

Loan business is the core business of commercial banks,the loan price whether is reasonable or not directly affects the profitability of banks and their competitiveness in the market. With China's financial markets gradually opening up and market-oriented interest rate, how to determine the price of loan for Commercial bank is a new issue.Along the traditional pricing method, pricing method's improvements, and then to expand pricing method for commercial bank, This paper studies the commercial bank loan pricing models.First, this paper introduced the commercial bank loans pricing situation and existing problems, discussed the basic principles and the factors that loan pricing should consider, discussed how to use the traditional cost-plus pricing model, Customers comprehensive profit model,and analysised their inadequacy. Second, in response to cost-plus pricing method's inadequacy on calculating the risk and expected earnings, in this paper a improved risk costs and the expected revenue calculation is provided . associated risk cost and the expected earnings with the borrower's credit rating ,this paper created a pricing model based on the credit risk rating.The model used the "semi-variance" to measure the credit risk of loans, it matching the benefits and risks of loans better. Using of a bank's internal data tested the model, obtained the credit rating of the borrower's balance interest rates,offer interest rates,value-at-risk (CreditVaR),the economic capital and other relevant variables. The empirical results show that the interest rates of investment-grade borrowers is lower than the actual rate, and interest rates of speculation the theoretical level borrowers is higher than the actual rate, which indicates that an investment-grade borrowers on credit market subsidies speculative grade borrowers and the existing the phenomenon of adverse selection. Because there are serious information asymmetry on credit market , the banks can not judge the borrower's credit accurately, only to determined the loan price according with the borrower's overall default rate, which is the Shortcomings of the cost-plus pricing method.The Mortgage can be able to ease the credit risk of loans in a certain extent , thus it lowering the interest rate. The relations between loan guarantee (collateral) and lending rates are irreplaceable. Therefore, in this paper we take collateral as a separate variables into the model in order to expand it. In the framework of option pricing loan interest rates, we studied the quantitative relationship between reasonable mortgage,interest rate and default rate of a loan. Models show that commercial banks whether raising the interest rate on loans or requiring the borrower to provide loan collateral to guard against risks is determined by the marginal rate of substitution (flexibility) size.Papers also compared the cost-plus pricing,customer profitability comprehensive pricing model,credit risk rating pricing model,based on the principle of Option Pricing Model with the merits of applications. Finally, the paper provided some policy recommendations for improving the China's pricing system for commercial bank.