Research On Loan Pricing Of Domestic Commercial Bank Based On RAROC Model During The Process Of Interest Rate Of Liberalization

It has passed about20years since the beginning of the process of marketization of interest rates in1993in China.The PBOC announced the full liberalization of interest rate and the financial institutions should determine the level of lending rates on commercial principles independently on July20th2013.Now it entered into the last crucial stage of interest rate marketization, namely the complete liberalization of deposit rates.We can foresee that the full liberalization of interest rate will bring banks enormous business opportunities and challenges in the near future.As the competition intensified among commercial banks, our commercial banks must improve their risk management capabilities to obtain development in competition.Loan pricing comprehensively reflect the level of risk management of commercial banks. As the develop of the process of marketization of interest rates,the competition of financial market will become more intense,and our commercial banks will also face more severe challenges,and will get more high-quality customer by using more competitive price.After considering different characteristics of the capital cost and different level of risk of the products,commercial banks will price the loan according to their own need.And the price will become the main competitive way,so the ability of price loans more effectively will determine whether they could get the victory in the future.Therefore, the ability to develop a reasonable loan pricing model is the core issues for our commercial banks to achieve sustainable development,and the ability of price loans more effectively will determine whether they could get the victory in the future.The study of loan pricing started earlier in western commercial bank and the theory and practical application of the method of loan pricing has been very mature. And because of the long-term interest rate controls, the ability to loan pricing is still very weak for the current commercial banks, and how to choose the scientific method of loan pricing requires many considerations.The purpose of this paper is to find a path of loan pricing suited to the situation of China by comparing and analyzing our pricing model and that of advanced Western analysis.At first this paper introduces the basic theory of loan pricing of commercial bank,and analyzes the change the interest rate marketization bring to commercial bank, followed by analyzing the shortage of current loan pricing of commercial bank.In addition, we comparing various international loan pricing methods and determining whether it could adapt to the new situation the liberalization of interest rate will bring.Then we focus on discussing the applicability of RAROC model in commercial bank loan pricing in the process of interest rate marketization, with corresponding empirical analysis, comparing it with existing commercial bank lending model.We conclude that RAROC model can be used as loan pricing methods used in China’s commercial banks at this stage in the process of interest rate marketizaion,and we improve the model in two aspects.Finally, we put forward conclusions and recommendations.The innovation of this paper is:firstly, we compare various loan pricing methods commonly used internationally, and discuss whether they adapt to loan pricing of commercial bank in the process of interest rates marketization;secondly we illustrate the applicability of RAROC model in commercial bank loan pricing in the process of marketization of interest rates; fmally,discussing the applicability of RAROC model in commercial bank loan pricing in the process of interest rate marketization, with corresponding empirical analysis, comparing it with existing loan pricing model and and improve it in two aspects.