5 Valuation of collateral / criteria for determining market value and loan-to-value

As part of risk limitation, collateral less a risk margin is taken into account as cover for laons/receivables and off-balance-sheet transactions (see Section 8.2 ‘Collateral for loans/receivables and off-balance-sheet transactions / impaired loans/receivables’). The calculation basis is determined by the marketability and liquidity of the collateral.

LUKB attaches great importance to ensuring that its loans are well secured. The recoverability of the collateral is reviewed at risk-appropriate intervals.

The following chart illustrates the lending values of the residential mortgages outstanding on the reporting date.

Mortgage-backed loans

There are binding rules for determining the market values (lending basis) of properties. The valuations are based on the respective use of the property (e.g. owner-occupied homes: hedonic model; investment properties: income capitalisation method). The lending basis for all valuations is the lower of cost or market value. The loans are to be amortised based on the type of property, loan-to-value ratio and purpose of use.

Other collateral

In particular, securities (such as shares, bonds or funds), financial investments and precious metals are accepted as collateral to cover Lombard loans and other secured loans. Depending on liquidity and tradability, LUKB applies haircuts to market or nominal values to cover the market risk associated with the collateral.