Banking
RISK-BASED LOAN PRICING
Background In any business, there is no point in originating transactions that involve a great amount of risk for a tiny return. This holds equally good for pricing loan products […]
Background
In any business, there is no point in originating transactions that involve a great amount of risk for a tiny return. This holds equally good for pricing loan products by a bank. Bank consideris return on a risk adjusted basis and the expected loss for the capital at risk. Therefore, banks should follow risk-based pricing with an objective of determining the minimum return on new transactions.
Risk-based Loan Pricing and Marginal Risk Contributions
The concept of risk-based pricing requires every bank to consider minimum return of new transactions, in line with the risk undertaken in the transaction, and with the bank’s target return. When considering a new credit proposal by a bank, it should fix its pricing in such a manner that it yields return in line with the target return on capital.
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ldmahat
LD Mahat is a Chartered Accountant, Financial Adviser and Risk Management Specialist possessing over 29 years of diverse experience across several sectors covering a wide spectrum of assurance, business advisory and taxation disciplines. LD is a committed, highly motivated and result-oriented professional, consistently developing and nurturing client relationship and building long-lasting relationships with diverse clients. He has the ability to define issues, propose customized solutions that significantly add value and contribute to client’s success.
LD has got master’s in risk management form New York University, Stern Business School. He has undergone executive education at Harvard Business School and Insead Business School. He was risk management specialist in several Asian Development Bank Funded projects. He has provided risk management advisory services in various Nepalese corporate sectors.
LD has worked on large projects jointly with big 4 international accounting firms ~ PwC, Deloittee, Ernst & Young and KPMG in the field of Assurance, Diagnostic Review, Capacity Building, e-Government Procurement, e-Governance, Special Review, Investment Climate, and IFRS Implementation.