Exploration For The Determination Of Cap And Floor Rates Of Corporate Loan Pricing Of Commercial Banks In China

Interest rate liberalization makes preparation for the independent loan pricing ofcommercial banks in china, and also put forward strict requirements for their capability ofpricing. Loan pricing is a critical part in the business of commercial banks, which docontributions to the banks’ asset quality and profitability. The determination of the cap andfloor loan prices is important to the achievement of the bank’s security and profitability goals.What’s more, it can ensure the sustainable development of the banks and help them makequick response to the competition in the market. The research gives commercial banks anacceptable interval of loan rates, in which the banks can find the very loan rate that achievethe aimed profitability. Knowing the pricing interval, banks can negotiate with the importantborrowers and competitors more confidently because they are clear about whether the ratecovers the cost and the risk, and if it can get the profit targets. The research helps banks reactfaster to the market and make no mistakes of judgment. Further more, the cap rate can helpprevent the adverse selection caused by overpricing and the floor rate makes the banks doeffort to reduce their costs and face the challenge of the market.However, there is no research focused on the cap and floor loan rate determination inchina. Some discussion was done in this paper, trying to be helpful to commercial banks inChina. The framework of this paper is as follows: in the first chapter, some basic concepts, thebackground and significance of the research were given, while a lot of valuable literature onloan pricing were collated and analyzed. In the second chapter, related theories wereintroduced. In the third chapter, the situation and present pricing methods of commercialbanks in China were studied. Through the analyses of the problems and what leads to theproblems, we found that it is important to price the cap and floor loan rates. Theoreticaldiscussions of the model and usability of the cap and floor loan rates were done in Chapterfour. In Chapter five, the hardest parts of the research was come up, and the procedure of loanpricing improved with the determination of the cap and floor rates was introduced. We alsogave two examples to make it clear. Some summaries were made in the last chapter, in whichseveral policy recommendations were also come up.