The Study Of Loan Pricing In China Commercial Bank With RAROC Method

The loan pricing based on RAROC is a comprehensive risk pricing method. RAROC takes safety and profit as the goal of the banking business, matching the price and dynamic risk of the loans, reflecting different treatment between the difference of risk degree of loans. This is conducive to the optimization and the rationalization to risk of bank loans. This paper focused on the improvements of RAROC Pricing and its application at our country's commercial bank.First,I introduced RAROC model and did a comprehensive analysis on main risk variables of the model. RAROC model is derived on the basis of loans'pricing formula based on RAROC. Subsequent,I analyzed the cost of capital,which is very important in loan pricing based on RAROC,and found that the changes of cost of capital will cause RAROC greater changes.So,bank loan pricing needs to determine the cost of funds rationally. Using their own liability costs based on the cost of capital, we neglected the external market environment.In this thesis, I introduce the market cost of funds to the loan pricing based on RAROC. Using Shibor as the benchmark interest rates in short-term and treasury yield curve to more than one year, we get the internal cost of capital curve.The use of market-based bank's internal funds transfer pricing possesses more scientific in calculating the cost of capital. So I made a good cost analysis in loan pricing.In general,the RAROC Pricing Model hasn't considered the contribution of the bank's customers, which neglect the relationship between banks and their customers.In this paper, we made a dynamic adjustment on the loan credit risk and customers return, a slightly-amending on Two aspects of income tax and risk factor, to improve the RAROC Pricing Model.Then,the loans' Price changed as enterprises-borrowers' default risk with more sensitivity, also ensure realizing the banks' expected profits, meeting requirements of capital adequacy ratio,Consistenting with the Basel Protocol's principles to the commercial banking supervision.Use the improved RAROC method to price banks' loans, comparative the results as follows: the RAROC models pricing for different clients credit rating loans can obviously reflect the differences of the loans' Price;on high-level credit rating clients such as AA or above, benchmark interest rates plus or minus method prices higher than the RAROC Pricing Model;Low credit rating clients such as BBB-level or below, the benchmark interest rate plus or minus method prices lower than the RAROC Pricing Model.The unadjusted RAROC Pricing Model calculated a higher price than the Model after adjustment.The general RAROC Pricing Model prices too high or too low, as the lack of a reasonable estimate of the risk,also can easily lead the bank losing important customers.The improved RAROC Pricing Model took the customer's credit changes into account, which is helpful for clients to improve the solvency of the customer and to strengthen risk management. Because of giving full consideration to inter-bank business relationship, according to General Customers return for lending rates to make adjust also close the bank-enterprise relations. Using the improved RAROC Pricing Model in our country, the Commercial Banks can enhance the pricing power and competitiveness, reduce domestic enterprises' financing costs, enhance the enterprises' credibility and visibility. So this paper possesses particularly active significance.