The logic behind is that longer maturity means longer financing period, consequently higher financing cost and greater possibility of changing cost, therefore, the loan rates should rise accordingly. Target profit can be estimated using return on capital and the ratio of capital to lending.
At present, loan pricing is one weakness of our commercial banks, because in the past they didn’t have much chance to do it due to interest rate control. In the process of interest rate liberalization in coming years, commercial banks need step up efforts in pricing product, accumulate experience and basic data, and strengthen international competitiveness.