Research On Loan Pricing Of China’s Commercial Banks Based On RAROC Model

In July 2013,the People’s Bank of China fully liberalized the interest rate on lending to financial institutions.Interest rate liberalization gives the decision-making power of interest rates to financial institutions.Financial institutions derive their interest rate from the main adjustment of interest rates based on their financial status and judgments on financial markets.This puts higher demands on financial institutions’independent pricing ability.Therefore,it has great practical significance to carry out loan pricing research in commercial banks.Firstly,this paper reviews the theory and methods of commercial bank loan pricing,analyzes the influencing factors of loan pricing,and describes the relationship between credit risk and loan pricing.Secondly,it introduces the existing pricing methods of loans in commercial banks.Thirdly,it discusses the feasibility of RAROC loan pricing method.Based on probability of default and economic capital,it constructs the RAROC loan pricing model.After that,this paper selects 240 groups of data as samples,uses SPSS to carry out LOGISTIC regression analysis,obtains the prediction model of default probability and the prediction model of economic capital.Then,the paper randomly selects 10 loan samples in Bank of China N branch’s database,uses the prediction model of default probability to calculate the economic capital,and gets the RAROC loan pricing rate.In the end,the paper analyses the difference between the actual loan interest rate and the RAROC pricing rate.The research results show that the loan pricing rate based on the RAROC model is higher than the actual loan interest rate.The existing pricing methods which underestimate the credit risk of the loan cannot match the loan risk and income.Based on the empirical analysis,this paper proposes some recommendations:1.Improving the internal credit risk rating mechanism;2.Strengthening the construction of the loan pricing database;3.Focusing on risk management Business;4.Forming a differentiated loan pricing mechanism.