Study On The Credit Interest Rate Pricing Mechanism Of Jin Xian Rural Credit Cooperative Based On RAROC Loan Pricing Method

As China’s market-oriented lending rates spread in full swing, banks havecompletely independent right to price lending rates. Banks can determine their ownlending rates based on many factors such as operating characteristics, target profit,capital costs, customers’ creditworthiness and operating conditions and other factors.In this way, banks can enhance the flexibility and competitiveness of the banklending rates. Banks can also attract more customers. But on other hand, thecompletely independent loan pricing model is bound to intensify competitionamong banks and increase the difficulty of the bank loan pricing. If the lending rateis too high, banks may lose key customers and reduce the potential benefits. If thelending rate is too low, the bank’s credit risk will increase and will affect itslong-term development. So how to develop a scientific and reasonable loan pricingmodel becomes an important problem for banks. For Jin Xian Rural CreditCooperative, there exist some problems such as heavy historical burden, nonstandardcredit management model and worse loans. Jin Xian Rural Credit Cooperative is in aweak position in the competition with commercial banks. So it will face moreopportunities and challenges in the process of marketization of interest rates. So tochange the existing business philosophy, to establish credit risk managementawareness, to establish a set of loan pricing method which meets the characteristicsof its own development is an important way to enhance the competitive strength ofJin Xian Rural Credit Cooperative.First this paper reviews the domestic and foreign scholars on the researchcontent of loan pricing, including loan pricing theory, loan pricing factors and loanpricing methods. Then the paper introduces the existing loan pricing methods ofoperating characteristics. The paper identifies shortcomings and adversely affect ofexisting loan pricing methods. Then on the basis of domestic and foreign scholars’research, the paper proposes RAROC Loan Pricing Method which is suitable for JinXian Rural Credit Cooperative.The paper recommends the determined factors of RAROC Loan Pricing Method and compare RAROC Loan Pricing Method withconventional loans pricing method to indicate its suitability for Jin Xian Rural CreditCooperative. After that, the paper uses quantitative analysis method. The paper usesRAROC Loan Pricing Method to calculate a customer’s loan interest rate andcompare it with the original loan rate to indicate the RAROC Loan Pricing Method’ssuperiority.Finally, the article proposes improvement suggestions to use RAROC LoanPricing Method for Jin Xian Rural Credit Cooperative, including establishing a riskmanagement-centric business philosophy, improving credit rating system, improvingthe internal funds transfer pricing systems. All these factors are the foundation ofRAROC Loan Pricing Method and the necessary conditions to ensure the long-termdevelopment of Jin Xian Rural Credit Cooperative.