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Collateral Valuation: Credit Risk: Approaches for other assets

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

Collateral Valuation approaches for other assets

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
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.

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