Loan Classification-based Loan Pricing Studies

With the quickening up of rate marketization in china, commercial banks owns more rights in determining loan rate and meanwhile faces more risk, which requires commercial banks higher standard of management ability. Loan as the most important and traditional business in commercial banks, will influence the payoff and the competitive advantage of commercial banks in terms of its loan pricing method and strategy. Also it will influence the bank's capital and customer structure. For commercial banks, a higher price will cause the loss of high quality customers and shrinking of the market while a lower price can not make up the cost for loans and the risk commercial banks faces and eventually lead loss, therefore a reasonable price for loan is highly related to the development and survival of commercial banks. This paper carries on the following researches on loan pricing of commercial banks:Firstly, it introduces the theory bases of commercial bank's loan pricing, including principles of loan pricing, determining factors of loan pricing and some basic loan-pricing methods of commercial banks.Secondly, it supposes commercial banks only provide two categories of loans which are allocated by the risk level and be called high risk loan and low risk loan. It also supposes that there exist two kinds of banks which are specialized banks and compositive banks. Specialized banks just provide loans for one risk level and compositive banks provide two risk level loans simultaneously. It supposes that the whole capital of commercial banks is used to issue loans. According to the theory that there are no excess profits in perfect Competitive market, it builds loan pricing model for each loan of each bank and gets the pricing formulas, then it discusses the influence of every factor to loan price including which the influence of deposit rate is the key factor to discuss. Then it compares the loan price in every risk level of the two banks. At last it shows the influence of deposit rate to loan rate of two kinds of banks.Thirdly, it expands the risk level of loans to 3 levels which are high risk, medium risk and low risk and then gets the pricing formulas for loan in each risk level of the two banks. Also it compares the loan price of the two banks in each risk level, and then gets the conclusion that specialized banks have price advantage in high risk loan, compositive banks have price advantage in low risk loan; while to medium risk loan, whether specialized banks or compositive banks own price advantage is determined by the default probability of loan in each level and their ratios to the whole capital of loans. Then it supposes that the default probability has fixed and compares the loan price of the medium risk loans of the two kinds of banks with the varying of the ratios of loan in each risk level.At last, through analysis, it gets the key conclusion that with the more and more drastic competition in banking, the operation of the banks will become more standard and in this environment some small parochial commercial banks should stick to provide loans in one risk level but not provide loans in all risk level simultaneously.