A Model And Development For Commercial Loan Pricing Of China Under Basel Ⅱ

Along with the all-round investment of foreign banks and the gradual popularization of Basel II in China, the loan business, which is the main source of income of Chinese commercial banks, would definitely make some changes accordingly in terms of such as pricing methods and strategies, which is in the interest of enhancing the competition strength in the market. By employing the knowledge of Economics, Economics of Strategy and Econometrics, this paper studies mainly about the effect mechanism of Basel II on that of loan-pricing, the revised model of loan-pricing in the background of Basel II and the measuring methods of probability of default of key loan-pricing variables.In the first place, the paper confirms the protective function of bank capital on unexpected losses and compensation methods to predictable losses in the process of loan-pricing, by studying Basel II and the characters of expected & unexpected losses. On the basis of which consequently, on analyzing capital costs and management costs of loans and the pricing characters of tax-transfer of commercial banks, the paper modifies the theoretic model of loan-pricing, and further to employing which model to reveal the effect mechanism of the internal estimating ways of Basel II on that of loan-pricing.In the second part, this paper studies the value creating process of loan business by employing the knowledge of value creating process in Economics of Strategy. And in consequence to put forward the general competition strategy which is suitable for the development of loan business of commercial banks: high ability of identifying risks and low costs. Thereby in considering the development situation of loan pricing in Chinese commercial banks and the market competition environment in China currently, the paper sets the cost-oriented mode as the primary loan-pricing model of Chinese commercial banks. Furthermore, this paper revises the pricing model of cost-oriented mode in view of the study results of the theoretic model of loan-pricing, which, in considering the "risk compensating factor" to strengthen the risk sensitivity of pricing model and, by employing the simulation example to explain the relationship between probability of default in Basel II and unexpected losses, enterprise size, the loan interest in the revised model.Moreover, this paper analyzes probability of default which is key variable of loan interest, and therefore choosing Logistic model as the measuring way on probability of default, furthermore, taking the practical verification on the validity and veracity of this model.In conclusion, on the basis of the studies in this paper, it proposes some suggestions on the development of loan-pricing system of Chinese commercial banks.