Research On Loan Pricing Under SCF’s For Bank Based On RAROC

The status and function of SMEs in the national economy and social development are more and more widely recognized. But SMEs are still facing serious financing dilemma which proves to be a great barrier to further development of SMEs. In the context of financial innovation, as a result, the supply chain financing model came into being. Supply chain finance makes a point on the stability of the supply chain, as well as the authority of the trade and the credit of the core enterprise. As a result, there are more and more SMEs came into the standard loaner of bank and the difficult of loaning from the bank is well settled. As a modern loaning policy, it makes an innovation of both pricing policy and methods of bank. Being one of the most efficient management methods promoted in the New Basel Capital Accord, Risk-adjusted return on capital RAROC management is widely being used in various operating activities of commercial banks. RAROC model can be applied to goal setting, business decision-making, capital allocation, performance evaluation and measurement of risk and return matches.To consider the pricing method of SME’s financing of SCF, this thesis chooses an appropriate loan pricing method for SMEs—RAROC(Risk Adjusted Return on Capital).Through the analysis on loan pricing towards listed SMEs, the thesis proves that RAROC well fits the loan pricing towards SMEs of SCF. In this thesis, firstly, through comparison of four loan pricing methods, RAROC is selected out as the best method for SMEs and its principle is introduced. Secondly, we established the model of RAROC from credit rating to settle the probability of default to establish the pricing model. After the primary selection of indexes is carried out; then, through the principle components analysis, the result of primary selection is sifted, and the weight is fixed by the variance contribution ratio of common factors, hence the comprehensive factor scores for SMEs, which are used as the subjects of cluster analysis to rank SMEs in five levels. After that, the probability of default and other indexes are well settled together and the model of pricing under SME’s of SCF is also settled out. Finally, through the comparison between the paper’s results and the price of loaning in reality, we are sure that RAROC is a better pricing model for bank’s pricing to SME under SCF.