Loan Pricing Of The China’s Commercial Banks Under The Background Of Market-based Interest Rate

As early as the1970s, American economists, McKinnon and Shaw, have found that financial regulation would destroy the intermediation of the financial market or even harm the economic development. But the market-based interest rate has made great progress to the developing countries. This theory has also been test by many scholars from the perspective of the empirical proof in the later years. With the rapid development of China’s economy and the internationalization of the RMB, the market-based interest rate has become inevitable proposition and China has also developed the corresponding programs of the reform. The market-based interest rate system has made great progress when the People’s Bank of China make no regulation on the lending rates of financial institutions. This leads the major revenue of the Chinese commercial banks substantially reduced, what’s more, the mode of operation and the philosophy of the asset-liability management have been also more of challenge. Therefore, how to make loans for scientific, reasonable prices under the background of the market-based interest rate is an important issue for the commercial banks.According to relevant literatures, the loan pricing model of RAROC has been used extensively in the field of international finance, which makes loans different prices based on the customers’ credit rates and makes lending rates dynamically match the credit risk. Therefore, we selected10listed companies from a commercial bank in early2010as to analyze the loan pricing model of RAROC. The results show that:only one loan pricing of RAROC in10is less than the actual lending rates, and the remaining nine loan pricing of RAROC are higher than the actual. It illustrates that the current price mechanism of commercial banks easily lead to underestimate the risk of loans. The compensation for the unexpected losses is not enough. But the loan pricing model of RAROC could have a more comprehensive coverage of enterprise risk and compensation, which would help commercial banks improve the efficiency and enhance the risk management under the background of the market-based interest rate. It demonstrates that the loan pricing model of RAROC is suitable for China and then we put forward some policy recommendations.