Collateral analysis is the analysis of the ability of collateral to support a loan and the collateral proceeds to satisfy any remaining loan obligations.  Credit analysis incorporates collateral analysis, which is most important for less creditworthy borrowers and in leveraged finance.

Secured collateral and higher seniority implies lower credit risk compared to unsecured lower seniority debt.  Senior term debt is lent against the collateral value of the pledged assets.  A secured creditor is generally entitled to protection against a decline in the collateral value of the asset securing the debt.

The internal guidelines that lay down the type of collateral that a lender generally accepts are specified in the collateral catalog, it including instructions on assessing acceptable collateral and on determining its collateral value.

Standard loan-to-value (SLTV) limits represent the maximum permissible LTV that meets the supervisory guidelines for banks.  Existing regulations and guidelines recognize that it may be appropriate, in individual cases, for banks to make loans in excess of the SLTV limits based on the security provided by other credit enhancement, such as mortgage insurance or readily marketable collateral.

IFC Loan-to-Value Ratios in OECD Countries and Emerging Markets
Emerging Markets
Type of Collateral OECD Friendly/Reformed Difficult/Unreformed
Immovable Property ≤ 90% ≤ 80% Cities: 60%-80%; rural: 30%-60%
Movable Property
Vehicles ≤ 100% 70%-100% 60%-85%
Equipment ≤ 80% ≤ 80% 60%-80%; secondary collateral
Accounts Receivable ≤ 80% ≤ 50% Secondary collateral
Inventory ≤ 50% Secondary collateral Secondary collateral
Source: International Finance Corporation

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