Collateral Valuation: Credit Risk: Approaches for other assets

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In this post, we briefly look at the valuation methodologies used for assets other than real estate.

i. Farm Product and Inventory

Such collateral is valued on a market price basis. In determining the value the appraiser will consider or undertake the following:

• Interview major buyers
• Review dealer listings and market sales reports
• The liquidity in the market
• The market size
• The volatility in the market
• The nature of the products, whether perishable or not
• The location of the storage or warehouse where the items are stored

ii. Mobile Vehicle

Collateral value may be assessed:

• On a secondhand car market price basis
• By interviewing experts and dealers
• By considering the maker, type, popularity and market for the vehicle
• By considering the age, depreciation schedule, any unpaid taxes or prior claim
• By considering the government’s policies with respect to import tax and other policies that could either impede or promote the market

iii. Intangibles

Collateral value may be assessed as follows:

Collateral Pledge	Factors to considered in estimating value
Negotiable Instrument	Validity Credit rating Obligor Maturity Type of transaction
Document of Title	Validity Location of the property Quantity Measure/ Weight Species/ variety Value per unit Quality Condition Marketability Market Price of property
Investment Property	Issuer Credit Rating Market Price Market volatility Market (OTC/ Exchange)
Account (Book Debt)	Obligors Level of diversification Length of terms Aging schedule Past default rates
Other	Terms and conditions Restrictions Variability of rights Marketability ,etc.

We have reviewed the valuation approaches for farm product and inventory, motor vehicle and intangible assets.