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Asset and Liability Management: The Banker’s Guide to Value Creation and Risk Control, Second Edition by Youssef F. Bissada, Jean Dermine

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Pricing loans

  • The pricing of loans has to ensure value creation.

  • We have shown that the interest on loans should incorporate a reward for shareholders (the ‘equity’ spread) and a spread for expected loss.

  • The size of the credit spread will be driven by the probability of default and by the expected loss-given-default.

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