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A Loan Pricing Model - jopl88 - 10-04-2017
Abstract
This project is intended to build a framework of a loan pricing model to determine loan interest rate for a commercial bank. The major task of this loan pricing model illustrates a conceptual guideline and methodology in order to process loan transaction more efficiently. The model of this project contains following major procedures: 1. Determining the cost of loan fund to be utilized in a loan transaction. 2. Developing a credit rating calculation and identify the rating category for corporate loan applicants. 3. Distributing the risk premium based on rating category. 4. Charging the overhead experience to reflect the cost of the loan. 5. Allocating the target profit of the loan transaction to achieve a desired return for the bank's management. Although some issues of this model may need further discussion, this model, however, provides a fundamental approach for a bank staff to process loan transactions.