Collateral and securities

A loan is safer when something stands behind it — a house, a vehicle, a parcel of shares, a guarantee from a third party. This feature keeps two records of that: what the customer has given you, and how much of it is working against each loan.

Those are different questions, and they live on different screens.

Two panels, two questions

The Collateral panel is the asset register. It lists everything the counterparty owns as security, whether or not any loan is using it. You register items here, revalue them here, and release them here.

The Securities panel is the cover view for one loan. It lists the pledges tied to that loan, values them, and totals them. You cannot register collateral from it — only pledge collateral that already exists.

flowchart LR
    CP[Counterparty] -->|owns| C["Collateral item<br/>value today"]
    C -->|pledged as| S["Security<br/>advance rate"]
    S -->|secures| L[Loan account]

One collateral item can back several loans, and one loan can be backed by several items. The pledge in the middle — the security — is what carries the advance rate and the link to the loan.

Registering a collateral item

On the counterparty’s Collateral panel, select Register.

1. Choose the Type — property, listed shares, a guarantee, and whatever else your organisation has defined.
2. Enter a Description. This is what everyone sees on both panels, so make it the thing itself: “12 Oak Avenue”, not “security 4”.
3. Choose the Currency the item is valued in.
4. Fill in the fields for that type. A property asks for its erf number, address and property type; listed shares ask for the symbol, the exchange and the number of shares. The fields come from the type, so they change as you change the type.

A newly registered item is Active and has no value yet. It contributes nothing to any loan’s cover until you record a valuation.

Valuing and revaluing

Select Record Valuation on the item’s row, then enter an amount and the date it takes effect. The amount you enter becomes the item’s current value.

Recording another valuation replaces the previous one — there is no averaging and no blending.

For example: you value a property at 1,500,000 effective 1 January, then value it again at 1,900,000 effective 1 March. The current value is 1,900,000, and every cover figure that uses it moves at once.

The most recently recorded valuation is the one in force. If you record a valuation whose effective date is earlier than the one already held, it still takes over — the panel holds the latest figure you gave it, not the latest date.

Some collateral types are marked for market pricing rather than a valuer’s opinion. Listed shares carry a symbol and an exchange for exactly that reason. There is no automatic price feed today. A market-priced item is valued the same way as any other — someone records the figure — and until they do, it counts as nothing.

Pledging collateral against a loan

On the loan’s Securities panel, select Propose.

1. Choose the Collateral from the counterparty’s active items.
2. Choose the Security Type — a mortgage bond, a pledge of shares, a guarantee. This is the legal instrument, not the asset.
3. Enter the Advance Rate — how much of the item’s value you are willing to count. 80% on a property is the same thing a lender means by a haircut of 20%.
4. Fill in the fields for that security type, such as the bond rank and the bond amount.

The advance rate sits on the pledge, not on the asset. The same property can back one loan at 80% and another at 60%, and each loan sees its own figure.

Your organisation can cap the advance rate per security type. A proposal above the cap is refused, with the cap in the message.

What the Securities panel shows

Only an Active security contributes. A Proposed one shows its value and rate but contributes nothing, and a Released one contributes nothing. An item with no valuation contributes nothing, whatever its rate.

A security you propose stays Proposed. Activating it is not an action on this panel today — on products that finance their own security it happens automatically (below), and otherwise it is done outside the panel.

Two worked examples

Alex takes vehicle finance from Woodgrove Bank on a vehicle worth 350,000 ZAR. The instalment sale agreement carries an advance rate of 100%, because the bank finances the whole vehicle and holds title to it. Cover contribution: 350,000.

Sam takes a mortgage bond on 12 Oak Avenue, valued at 1,500,000 ZAR. The bond carries an advance rate of 80%. Cover contribution: 1,200,000 — the remaining 300,000 of value is the bank’s margin against a forced sale.

Register collateral in the loan’s own currency. Total Cover adds the contributions together as they stand; it does not convert between currencies.

Releasing

Two things can be released, and they are separate.

Releasing a security ends one pledge. The loan loses that line’s contribution. The collateral item stays on the register, still owned by the counterparty, free to back something else.

Releasing a collateral item takes it off the register altogether. Select Release on its row. It is refused while any security on it is still live, whether proposed or active — release the pledges first.

A released item keeps its last valuation on the record. An item last valued at 2,000,000 still reads 2,000,000 after release, so the history stays legible to anyone reconstructing the file later. You cannot revalue it again.

Loans that secure themselves

Some products exist to finance the very thing that secures them — vehicle finance, a mortgage bond. Re-keying the vehicle or the property as collateral would be pure re-entry, so the system does it for you.

When such an account is activated, it registers the collateral in the counterparty’s name, values it at the figure captured on the application, pledges it to the new loan at the product’s advance rate, and activates the pledge. The Securities panel shows full cover from day one, and the item appears on the counterparty’s Collateral panel like any other.

Which products behave this way is configuration. A product with no such arrangement takes the manual route above.

What cover does, and does not do

Total Cover is a figure to read, not a control.

• It does not limit lending. A drawdown is not checked against it, and it does not size a facility or a credit limit. See facilities and credit limits for what does.
• It does not feed impairment. A provision is worked out from arrears and the matrix, not from security. Where you judge that the security is worth less than its valuation, that judgment goes in as an assessed provision — see bad debt provisioning.
• It does not stop over-pledging. Pledging one item to two loans is allowed, and each loan counts its own contribution in full.

Registering, revaluing, pledging and releasing can all require a second approver. See countersign.

What your organisation configures

• Collateral types — the kinds of asset you accept, the fields each one captures, and whether it is priced by a valuer or from the market.
• Security types — the instruments you take, their default advance rate, any cap on that rate, and the fields each one captures, such as bond rank.
• Self-securing products — which products register and pledge their own security at activation, which collateral and security type they use, the advance rate, and which application field supplies the opening valuation.
• Where the panels appear — which account types show the Securities panel and which counterparty types show the Collateral panel.

Adding a new kind of collateral is configuration, not a release. If you accept a new asset class next quarter, an administrator defines its type and its fields, and both panels pick it up.