Finance Policy and Practise - Essay Example

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Finance Policy and Practise

The LTV ratio is used to determine whether the borrower is likely to default. A borrower who is considered rational is likely to default when the value of the collateral falls below the value of the loan by an amount which equates to the net cost of the transactions such as relocation expenses, future payments for being deficient and the stigma attached to the situation (Crawford and Rosenblatt 1995, cited in Qi and Yang 2009). There are various ways in which a bank such as VB may become exposed to default and these are matters to be discussed. 1.1 Assessment of Estimated Property Values In assessing the value of a property and the annual rental price a number of formulas are used. The gross rent yield and the price/rent ratio are very useful formulas. Global Property Guide (2012) indicates that the gross rental yield on UK properties is 3.43% and the price rent ratio is 29 yrs. The price/rent ratio was used to calculate the property values and the gross rental yield was used to calculate the rental. ...Show more

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Instructor Date Finance Policy and Practice Contents 1.0 Introduction 1.1 Assessment of Estimated Property Values 2.0 Assessment of Existing Portfolio after Revaluation 2.1 Loan-to-Value Ratio 2.2 Assessment of Interest Cover 3.0 Strategy for risk reduction 4.0 Assessment of the diversity of the loan portfolio 4.1 Concentration of exposure by expiry date 4.2 Lease expiry date 4.3 Exposure to customer/group 4.4 Exposure to property type 4.5 Exposure to tenant 4.6 Exposure to interest rate risk 4.7 Property Age and Obsolescence 4.8 Exposure to specific groups 5.0 Future Expansion 1.0 Introduction According to Qi and Yang (2009), under the Basel II framework the calculation of the mi…
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