Understanding LTV Ratio in Loan Against Shares
16/04/2024 Financial & Legal Services
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Description
In a Loan Against Shares (LAS) transaction, the Loan to Value (LTV) ratio is a crucial factor. It determines the amount of loan that can be availed against the value of shares pledged as collateral. LTV is expressed as a percentage and is calculated by dividing the loan amount by the market value of the shares pledged. LTV ratios vary depending on the lender, the type of shares pledged, and the prevailing market conditions.
Higher-quality and more liquid shares may allow for a higher LTV ratio. It's important to note that lenders may also consider other factors such as the borrower's creditworthiness and the overall market risk. Understanding the LTV ratio is crucial as it helps borrowers determine the maximum loan amount they can avail against their shares and lenders to manage their risk exposure.
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