The Study Of Loan Pricing In China Commercial Bank With RAROC Method

During the revenue stream of commercial banks in China, loan business accounts for a significant proportion which is also a vital method for social financing. As a cornerstone of commercial banks and also the safeguard to economic development,the rationality of loan pricing has intimate relationship with banks ’profitability which concerns whether the real economy can successfully transfer. In the long run since the government takes measures to control interest rate, commercial banks have long been suffering weakness in loan capability. The central bank opens financial institutions lending rate control comprehensively meanwhile the pricing power also opens in which situation commercial banks can make price according to market supply and demand, and this also challenges the risk control and pricing power to commercial banks.With the prosperity of our capital market, financing without media is growing on each passing day. In a short term commercial banks will be faced up with decrease on interest-rate spread because of interest rate marketization. And internet financing also has great influence on deposite business to commercial banks leading to higher capital cost, which also producing high rating risk to domestic banks. The implementation of regulations on new capital management makes the banks to come up with strict and extensive eligible capital and risk covery. So the banks can keep a steady growth by improving the ability of pricing.RAROC pricing method is targeting at promoting the banking business’s safety and profitability, balancing risks and profits. It treats the clients differently based upon their tolerance of risks. By analyzing the parameters of RAROC method applying options pricing method to modifying the RAROC model.This article firstly introduces the history on interest rate marketization of commercial banks, and discuss five existing pricing methods. After analyzing the above methods, we focus on RAROC method. Based on RAROC, we mainly discuss expected losses and economic capital.At last we combine real loaning case with RAROC method to conclude a new method of bank risk management.