China's Commercial Bank Loan Pricing Studies

Since October29 2004, the People's Bank of China would no longer set the upperlimit of the loan interest rate for commercial banks;enhancing loan pricing ability hasbecome an important issue to commercial banks.Firstly, I define the loan pricing and discuss the meaning of getting researchinto the topic. Then I gave a brief summary of other papers focusing on loan pricing.Finally, I gave the structure of my paper.Having a better command of the history and current situation of loan pricing inChina is very significant for us to find the proper way of pricing loans. So in thefirst chapter, I discuss the interest rate reform history, in other words, the history ofloan pricing in China. Then I give a summary of main problems which have bad effecton pricing loans in China.In the second chapter, I introduce some main models used by foreigncommercial bank during pricing loans, and these models is very meaningful for us tofind the model suitable for our country. Generally, these models are divided into threekinds. The first kind focuses on the cost of banks. The second kind pays moreattention to the market price of funds. The third kind shows that banks determine theprice of loans after considering the whole contribution and their relationship with thecustomers. I compare these three kinds of ways of loan pricing and analyze whetherthey are suitable for China.The third chapter discusses how to apply the Internal Ratings Based Approach toloan pricing,especially discussed how to calculate default rate.The forth chapter discusses loan pricing models and their application. Whenchoosing proper loan pricing approaches, we need consider banks, borrowers and theenvironment. When we choose appropriate models, we should consider cost, marketand customers at the same time. And as the competition becomes more and morefierce, banks realize the importance of win important customer, so the analysis ofcustomer profitability is very necessary for banks in China.The final chapter gives some recommendation of establish the loan pricingsystem in China.