Collateral Valuation: Credit Risk: Approaches for other assets

< 1 min read

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 PledgeFactors 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
  • 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.