The model price leadership have begun to use the world's largest banks

In fact, the loan interest rate will be determined by the formula: CPM = BS + ND (2.1) where the CPM - the interest rate on the loan; BS - base rate or prime -rate (including the desired size of the bank's profit in excess of operating and administrative expenses); ND - allowance is calculated by the formula: OD = Mon + PS, (2.2) where MO - premium for risk of default is not to prime borrowers; PS - the risk premium associated with the terms and long-term loans. The establishment of the interest rate on loans below the prime rate (premium model), due to increasing competition among banking institutions and pursuing an aggressive policy of banks which provide loans at rates that are approximate to the cost of borrowed resources. Thus, CPM = PS + ND (2.3) where the CPM - the interest rate for the loan; PV - interest expenses on raising the money market, ND - premium to cover risk and profit. As a consequence, the interest rate on short-term loan rates below the prime rate as the base for calculating rates. Establishing rate on the loan on a "cost-utility" includes the following three components: assessment of the gross income from the loan under different levels of interest rates and other remuneration of the bank, estimate the net amount provided in the loan proceeds (net of all deposits, a borrower agrees to keep in the bank, subject to the norms of redundancy), the estimate of profit before tax credit granted by dividing the estimated income from the loan at the net amount of funds provided in the loan, which will actually use the borrower. To choosing the optimal pricing method for credit services should compare the advantages and disadvantages of each method. Category: Management Operations Commercial Bank | Tags: m