Loan Pricing and Increasing Risk

Penson, John B,

American Bankers Association, 1998, vol. 11, issue 3

Abstract: An institution's written loan policy outlines the procedures to be followed in making new loans. Traditional loan pricing is based upon existing indicators of liquidity, solvency, debt repayment capacity, and collateral coverage. Little or nothing is explicitly done to account for future trends in risk exposure. Static loan pricing practices which are based solely upon existing conditions are discussed, and ways in which ignoring potential future trends can cause a lender to accept rates of return incompatible with the institution's stated loan policy are presented.

Keywords: Agricultural; Finance (search for similar items in EconPapers)
Date: 1998
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