1. Commercial loanpricingisforthose exceptthe biggestandsmallestcommercialloans.Pricingismore of
an art rather than scientificanditisheavilybasedonindividual discussionsof the relationshipmanagers
and theirclients.Inamarketwhere the savvyborrowerscanknow more about marketpricingthantheir
lenders,banksneedtoarmRMs withcrucial analysisandstatisticstoremove the 'information
drawback' thattheyface.There is a desirable needforabetterand improveddiscussionframework that
not onlyestablishesprofitable trade-offsinspreads,feesandterms,butalsoprotectsriskadjusted
returnsand seizesthe inside potentialinthe instancesof strongdemand.Withcommercial loanpricing
youhave five stepsinthe processof maturity:Adhoc, cost based,competitorbased,elasticitybased
and optimization.
The assessmentof the analysisisamatter of crucial importance inthe bankingenvironment,whichisa
matterof the percentinrejectingprofitability,competition,andthe economicstruggles.These loans
representthe banksbiggestclassof theirearningassets,whichthe commercial loanportfoliohasthe
abilitytoadjustto rapidlychanginginterestrates.These portfolioshave effectedseveral things:
Deregulation,more unpredictablefinancial markets,the urgentsituationsof global economy,increased
rivalry,significantcustomerexperience,recenteconomicstruggles,andrejectionincommercialreal
estate values.
The format of the analysisisdesignedtobe easierto comprehendandworkwith.Italsoprovidesan
outline andbetterapproach.