Analysis On Fund Trasfer Pricing Of Commerical Banks In Practice

People's Bank of China(PBOC) has adjusted benchmark interest rate of loan and deposits since 2014. The interest rate of loan and deposits has been gradually moving towards interest rate liberalisation. However, the bank have to face serious challenges on profitability given acceleration of interest rate liberalisation. Since the emergence of structured deposits, the average cost of banks taking deposits is higher than before, increasing overall funding cost in the end. In this context, banks need to be fully prepared to face the challenges. The top management of banks have to consider how to stabilise growth by diversification of products and business, how to improve management strategy to deal with crisis due to change of external financial conditions and how to effectively adjust long-term strategy to make to maximize banks' value. There is no conclusion without financial data.Internal funding transfer pricing(FTP) is a kind of effective management accounting tool for interest rate risk management, liquidity risk management, product pricing, resource allocation and performance assessment. It is able to achieve daily operating management and strategy formulation with a full set of FTP framework. However, it is pretty much complicated to construct a system of FTP in the banks. In the process of construction, you have to solve lots of problems such as selection of yield curve, setup of pricing methodology together with determination of scope of adjustments factors. Moreover, given uncertainties of external economy conditions, the supervision policy has been increasingly strict. The banks have no idea how to adjust FTP system to react these changes.The article is initiated from fundamental theory of FTP, demonstrating whole framework of FTP in theory. Then, I summary the survey of 15 European banks regarding FTP and illustrate key points and highlight such as liquidity assets buffer and behavioral adjustment. Finally, Fundamental theory together with advanced experience of foreign banks are applied to constructing FTP system for local banks. We would like to setup a mechanism fitting to local bank in favor of improving Loan to deposits ratio of branches as well as business line and enhancement of liquidity management. In a word, the purpose of this paper is to benefit for understanding concept of FTP and face the challenges by constructing a framework suitable to local banks.