Research On The General Pricing Method Of China's Commercial Bank Loan

Commercial bank is one of the most important components of China's financial institutions, and its operation quality directly affects the whole country's economic development. In China commercial banks'profit mainly comes from loan operation, so the more accurate models of loan pricing are, the more profit that the bank can earn. This disquisition is mainly about the general pricing method of China's commercial bank loan.Now the pricing models of bank loan have developed from traditional loan pricing models (such as Cost-plus loan pricing model and Price leadership loan pricing model, etc) to modern loan pricing models in most developed countries. These modern loan-pricing models are based on the modern financial theories: CAPM model, Option pricing model, VaR and RAROC model. Furthermore, with the development of modern credit risk measures, the pricing models of bank loan have shifted from subjective to objective, from qualitative analysis to quantitative analysis. This helps people understand the pricing of bank loan better.It is very difficult to directly apply these modern pricing models to China's commercial banak because of the limit of China's economic environment and Commercial banks'condition. This paper tries to create a new model: interactive pricing model, such innovations have been made in the model. First of all, the model is fully concerned of the conditions of China's commercial bank, and with more emphasis on the interactive relationship between different factors and pricing, this model can give an appropriate lending rate under the condition that the macroeconomic environments, the status of loan's demand and supply and risks etc are taken into account. Second, in the process of building this pricing model, this paper tries to find a right prime rate of loan and use it as a criterion to measure loan terms and risks and also takes into account other factors that may affect loan rate. At last, the model gives a feasible method to measure credit risk through which the loan-pricing model in China can be better solved. In the end, this paper presents an operational flowchart of interactive pricing model and a case analysis of loan pricing and some advice to commercial banks. This paper only gives a method of pricing model of China's commercial bank loan and leaves some room to be improved on this model.