Credit Risk Measurement And Study Of Commercial Bank Loan Pricing

Credit is one of the key businesses of commercial banks in China; it is alsoone of the major sources of their earnings. The reasonable price of loans will notonly promote the income of commercial banks and it also improves the quality ofits assets, the customer structure and its competitiveness. At present, under thefierce external compete and without scientific measurement of the borrower’scredit risk, when commercial banks make out the loan price, it can not cover thecredit risk the banks to face. Thus, when borrowers are default, the commercialbanks can not obtain the corresponding risk compensation. At the same time,when a large number of events of default occur, the commercial banks will facegreat survival risk. So measure the borrower’s credit risk scientifically and let itbe a part of considerations of a loan pricing will be important theoretical andpractical significance for commercial banks to improve their loan pricing abilities,establish reasonable loan pricing methods and adapt to the market interestfinancial environment.Any one can’t make price without considerate other factor, besidescommercial banks. Based on the study of the related theory and method of thecredit risk measurement and loan pricing, we analyze the relevant factors whichaffect the loan activities in the macro and industry level, the counterparty leveland bank management level, and give the corresponding quantization standards;then we analyze the impact on loan interests that made by loan term and loanrelease time in the loan agreements and quantify them; finally we defines therelationship between banks and enterprises, and make out the effect on loaninterest made by all kinds of relationship between banks and enterprises, and givethe way to quantify them.When commercial banks make out the price of a loan, the credit risk of theloan is the most indeterminate factor and its measurement including calculate the probability of borrower default and the LGD of the loan. When determine theborrower’s default probability, this paper, based on the analysis of the borrower’sdefault reasons, first do some study on borrower’s debt ensuring cash flow andfrom quality and quantity two aspects we set the stop point for a loan. Thenaccording to the distribution pattern and distribution characters of the borrower’sdebt ensuring cash flow we give the way and steps to determine its distributionfunction. At last, we give the rules to judge whether the borrower is default andalso set the threshold value of the rules.When calculate the LGD of the loan, we first give the method for calculatingthe payment rate and default loss rate of debt without other guarantees. Then wediscuss the measurement of default loss under three conditions: first, the debtwith others guaranteed; second, and the debt with pledge; third the debt withhypothecation. By Multi-Copula theory, we develop the joint distributionfunction for borrower and guarantor. We use ARCH, GARCH and t-GARCHmodel to explain the fluctuations in the value of the collateral and reference toVaR theory we establish collateral value risk model. According to mortgage(pledge) value risk ratio of debt to determine the value of mortgage (pledge) canset the security.Having reflected the credit risk the loan pricing should cover the followingtargets: the price should be competitive, maximize the income on the risk undercontrol, cover the cost and achieve the desired profit. In order tocomprehensively reflect the combination of the loan credit risk and commercialbanks’ management goal, the paper analysis we made, we established signaltarget loan pricing models according to the different credit risk that target whichmentioned above should references. Then based on the multi-targets optimizationtheory we give the loan pricing model which reflect the commercial banksmanagement targets and use tiered balance pricing scheme to work out loanpricing for the model; Finally, we use Markov chain to introduce the changes incredit risk and based on these we realized the transformation of the current loaninterest to long-term loan interest.Based on these studies, in sixth chapter we have a listed company as anexample to show how to calculate the loan price with guarantee. In this example,with the help of Matlab we make out the distribution functions and their parameters for the debt ensuring cash flows of borrower itself and warrantor,then determine the borrower’s default probability and their joint defaultprobability. We can also get default loss rate through the method we mentioned inthis dissertation. Based on the Loan Pricing in a single target and tiered balancepricing we can get the ranges of loan price for borrower.