1. Course Content

1. COLLATERAL – DEFINITION AND TYPES

i. Types of collateral
ii. Extent of collateral
iii. Performance indicators for collateral

2. ROLE OF COLLATERAL IN FINANCIAL INTERMEDIATION

3. COLLATERAL AND COLLATERAL LAW

i. Impediments to financial intermediation and impacts on credit risk management

4. IMPORTANCE OF COLLATERAL VALUATION TO CREDIT RISK MANAGEMENT

5. COLLATERAL VALUATION – GENERAL PRINCIPLES

6. COLLATERAL VALUATION APPROACHES FOR REAL ESTATE

i. Sales Comparison Approach

a. Methodology
b. Appropriate Uses
c. Inappropriate Uses

ii. Income Capitalization Approach

a. Methodology
b. Appropriate Uses
c. Inappropriate Uses
d. Sources of Data/ Information

iii. Cost Approach

a. Methodology
b. Appropriate Uses
c. Inappropriate Uses
d. Sources of Data/ Information

7. COLLATERAL VALUATION APPROACHES FOR OTHER ASSETS

i. Farm Product and Inventory
ii. Mobile Vehicle
iii. Intangibles

8. SECURITY INTEREST – THE PROTECTION AND ENFORCEMENT OF COLLATERAL

i. Creation of security interest
ii. Perfection of Security Interest
iii. Collateral Management

a. Credit Risk Management
b. Safeguarding Enforceability

iv. Enforcement of Security Interest
v. Termination or the extinguishing of Security Interest

BIBLIOGRAPHY/ REFERENCES

EXCEL Examples

No

2. Introduction

One of the most pertinent questions in risk management has been: How much do you stand to lose, over a certain period and with a certain probability? The most The purpose of collateral valuation is not to find an accurate or single unique solution to the price but rather to find one that would be considered realistic, practical and acceptable to ordinary market participants.

Further collateral should be evaluated based on the market value rather than the book value of the asset. Usually it should also be one that is based on the most conservative assessment approach.

For property pledged as collateral, it is desirable that it should be located within a reasonable distance from the lenders office, so that the lender (or his subordinates/ employees) is able to make frequent visits for the purpose of inventory checks and physical inspection.

Also related to property pledged as collateral, lenders should keep an eye on the market as rapidly rising market prices could be an indicator of the development of a price bubble and a subsequent substantial decline in property values.

The appraisal and valuation process should be independent and segregated from the lender’s loan production and collection process. The appraiser should have no interest, financial or otherwise, in the property being valued or the loan transaction.

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