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 | |||