Risk-Adjusted Loan Pricing-Reference-Cited by-同舟云学术

Risk-Adjusted Loan Pricing

Published:2022-11-19 Issue:3 Volume:17 Page:8-24
ISSN:2612-3665
Container-title:Risk Management Magazine
language:
Short-container-title:RMM

Author:

Fiordelisi Franco, ,Palego Carlo,Richetto Annalisa,Scardozzi Giulia, , ,

Abstract

We analyze what are the main pricing components for performing loans. By exploiting a survey conducted by the authors in AIFIRM (2021), we provide empirical evidence about whether and to what extent various pricing criteria are related to interest income within the internal model framework. Our main findings are that banks’ interest income is positively related to the adoption of advanced internal risk-based models, the calculation of the break-even rate, and the implementation of the risk-adjusted profitability measures in the pricing, while it is negatively linked to higher market competition, a decentralized pricing function (allowing more customeroriented loans prices). The results make urgent to monitor and develop improve current risk models to support both central offices and the sales network in the process of formulating loan prices and monitoring the value consequently created.

Publisher

Italian Association of Financial Industry Risk Managers (AIFIRM)

Subject

General Medicine

Reference16 articles.

1. • AIFIRM (2021). Pricing and risk-adjusted return measures, AIFIRM Position Paper n.27.

2. • Greenspan, A. (1995). The case for risk-based pricing, ABA Banking Journal, pp. 58-60.

3. • Bellini, T. (2019). IFRS 9 and CECL Credit Risk Modelling and Validation: A Practical Guide with Examples Worked in R and SAS, Academic Press, London.

4. • Chawla, G., Forest, L.R., Aguais, S.D. (2016). Point-in-Time loss given default rates and exposures at default models for IFRS 9/CECL and stress testing, Journal of Risk Management in Financial Institutions, 9(3), pp. 249-263.

5. • Curcio, D., Gianfrancesco, I. (2009). Bank loans pricing and Basel II: a multi-period risk-adjusted methodology under the new regulatory constraints, Banks and Bank Systems, 4(4), pp. 56-66.