Commercial Bank Individual Consumer Credit Pricing Research

With the opening up of financial markets, the interest rate liberalization has become the main elements of reform in China’s financial markets. In addition, with the fiercer competition among the financial institutions, domestic commercial banks put forward higher request to its competitive ability and profitability, especially to the individual consumer loan field, which is considered with tremendous potential of development and expansion. In order to meet the request, commercial banks, nowadays, spend most of the efforts on developing business innovation, improving risk management and profitability. Consequently, how to price individual consumer loan rationally, which is expected to effectively control the risks, increase profitability and expand the market share under the market-oriented interest rate background, is becoming the most urgent subject for commercial banks to concern. And this issue also constructs the major contents of this paper.First of all, the loan pricing was discussed on the theoretical level, as well as the development history and current research of consumer loan pricing. Secondly, after taking the current situation of the commercial banks in China into account, the problems of consumer loan pricing in was pointed out. Meanwhile, the three methods, which are applied to calculate the credit risks in The New Basel Capital Accord, were compared based on the former research. Additionally, the practicality of employing primary IRB method (Internal Rating-Based Approaches, IRB) was presented, as well as the estimation of the expected loss ratio and the unexpected loss ratio under primary IRB method. Moreover, primary focus was laid on the credit risk assessment of IRB method, especially on the usage of logistic regression method to assess the default ratio with authentic proof research. Furthermore, comprehensive comparison was listed on the advantages, limitations and applicability of the present three ways of loan pricing. Last but not least, based on the current situation of domestic commercial banks, a model of consumer loan pricing method was proposed, which employs monetary market rate as the Bench Mark, adopts the primary IRB method of The New Basel Capital Accord to assess the expected loss ratio and the unexpected loss ratio, addresses the synthesize contribution of the clients and the relationship between the commercial banks and the clients to fix the expected profit ratio. And suggestions, in accord with the proposed model, on how to further improve the consumer loan pricing system was presented as well.