Numerous financial institutions find it challenging to set prices amidst fluctuating interest rates. This challenge stems from a lack of comprehension regarding the integration of interest rate and liquidity risk costs into their pricing strategies. Moreover, the challenge of determining origination and servicing costs further exacerbates this issue. These issues can be addressed by applying Kohl's Strategic Pricing Framework. The model uses the framework to set a minimum loan price required to meet the strategic capital objectives by using your loan data, funding rates that incorporate interest & liquidity risks, and Kohl's world-class operational cost data.
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By using this service, you understand that the information provided is for general informational purposes only and should not be considered legal, financial, or professional advice. We make no guarantees regarding the accuracy or completeness of the information, which is based on industry averages. Individual results may vary, and it's advisable to seek personalized advice before making decisions based on this data.
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Current Capital divided by Current Assets
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Expected Asset Growth Rate
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Capital needs to grow at the same rate as the institution. Therefore, multiplying desired capital ratio by the expected growth rate provides the proper ROA for pricing.
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Anticipated loan loss rate for the type of instrument as a percentage.
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Anticipated constant prepayment rate.
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The mathematical calculation of weighted average life based on term and prepayment rate. For more information, See Kohl's Resources Page for a detailed explanation of Weighted Average Life.
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Input balance times input loan rate for all loan types except for credit cards. For Credit Cards, the rate is adjusted for cards that are paid off on a monthly basis based on Kohl's data.
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The common amount of fees and other income not related to the interest rates by product from Kohl's database. This amount is divided by the input balance to determine the percentage.
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The rate is retrieved from the Federal Home Loan Bank of Des Moines for the current day using the calculated Weighted Average Life of the loan. This is known as "match funding." Match funding inserts liquidity and interest rate risk into the loan pricing formula. For more information see Kohl's Resources page for a detailed explanation of Funds Transfer Pricing.
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One-time, up-front origination costs are amortized to a level yield similar to FASB 91. The initial costs from Kohl's database include un-booked applications, funding/closing, and marketing are amortized by dividing the total amount by the Weighted Average Life (WAL) of the loan. For more information, See Kohl's Resources Page for a detailed explanation of Weighted Average Life.
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The amount is by product from Kohl's database. The percentage is the amount divided by the loan balance.
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The amount is by product from Kohl's database. The percentage is the amount divided by the loan balance.
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The input balance times the input loan loss percentage.
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The amount is by product from Kohl's database. The percentage is the amount divided by the loan balance.
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The strategic pricing framework is not an explicit pricing solution. It is intended to establish a minimum rate necessary to achieve the capital goals, recognizing all risks and costs.
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Warning: The cost data provided in the calculator is not specific to your institution. To obtain your institutions specific cost data, please schedule time to speak with Kohl. In the meantime, check out our available resources.