China's Commercial Bank Loan Pricing Research

With the increasing competition among commercial banks, the Chinese commercial banks need to improve their risk management capabilities to develop well. Commercial bank loan pricing is a comprehensive reflection of the level of risk management. Therefore, the ability to make reasonable loan pricing is the core element that whether the commercial banks in China can achieve sustainable development. In western, the study on loan pricing started early. Loan pricing theory and practical application of methods have been very mature. Because the loan interest rate was controlled for a long time, the ability of China's commercial banks on loan pricing is also very weak. Therefore, China's commercial banks should learn the advanced technology of loan pricing from the western banks. China's commercial banks should not only focus on international pricing, but also take the localization of the way of loan pricing into account.Through analysis and comparison of the RAROC loan pricing that the western commercial banks commonly use, the author find that the pricing model is advantage and point it that also is a good choice for China's commercial banks. RAROC loan pricing model is based on the characteristics and needs of western commercial banks. However, China's commercial banks have their own characteristics. RAROC loans Pricing directly applied to the pricing of commercial bank loans may not well serve the domestic commercial banks. Therefore, Chinese commercial banks should improve the RAROC loan pricing model and make it suitable for China's commercial banks. According to this idea, the author proposes that the RAROC loan pricing should be improved before it is used by domestic commercial banks.This paper describes the RAROC model theory, analyzes the status and problems of commercial bank loan pricing and points it that the RAROC loan pricing model is the inevitable choice for China's commercial banks. According to the characteristics of loan pricing of China's commercial banks, loan pricing on the RAROC model is modified. Then, the paper gives the practical case and analyzes the results. Finally, the author makes the conclusions and recommendations.The main innovation in this paper is the localization of the RAROC loan pricing model. It adds the comprehensive customer contribution to RAROC loan pricing so that the improved method can price on basis of both reasonable risks-profit ration and relationship between banks and customers the element of which the domestic commercial banks must consider. The second is that the paper compares the differences between the improved sole RAROC loan pricing and RAROC loan portfolio pricing and initiates that because of different of economic capital; the loan interests calculated by the two methods are not the same.