To strengthen and standardize the management of collateral and pledged assets by commercial banks and effectively prevent and mitigate credit risks, the CBRC has... 2017 Year 5 The Ministry of Finance issued the “Guidelines for Pledge Management by Commercial Banks.” The “Guidelines for Pledge Management by Commercial Banks” stipulate that asset valuation is an important component of pledge management, and strengthening and standardizing asset valuation work is of great significance for enhancing and improving pledge management.

　　Pledge appraisals are divided into internal bank appraisals and appraisals conducted by external appraisal agencies. Relatively simple assessments are carried out by the bank’s internal departments, while more complex assessments should be entrusted to external appraisal agencies. Commercial banks should actively leverage the professional strengths of external appraisers, and external appraisers, in turn, should proactively assist commercial banks in performing pledge appraisal-related tasks.

　　Asset valuation can play a positive role in perfecting the collateral management system, including:

　　First, develop a catalog of collateral assets and refine the structure of collateral. Pledged loans account for a significant share of commercial banks’ lending portfolios. To ensure that the structure of collateral assets is reasonably and dynamically adjusted in response to economic developments, industry changes, and shifts in customer profiles, commercial banks need to take a comprehensive and coordinated approach. Valuation agencies, drawing on their professional experience and expertise, should assist commercial banks in screening collateral assets—especially by introducing new types of collateral—and continuously adapt to the needs of economic and social development, thereby enriching and perfecting the collateral asset structure.

　　Second, reasonably determine the loan-to-value ratio and the term of the collateral. From a professional appraisal perspective, appraisal agencies can provide expert support to commercial banks in determining appropriate loan-to-value ratios and collateral terms, taking into account appraisal techniques as well as market transaction data on the appraisal objects.

　　Third, proactively carry out the reassessment of collateral and pledged assets. Assessment agencies should fully leverage their professional strengths, taking into account the specific characteristics of the collateral and pledged assets themselves, as well as changes in policies, industry trends, and market conditions, to conduct scientific and rational value reassessments. This will help minimize risks to commercial bank loans arising from the valuation process itself.

　　Fourth, leverage the role of valuation and ensure effective disposal of collateral and pledged assets. It is preferable to have external appraisal agencies conduct valuations of non-performing assets. On the one hand, once collateral and pledged assets become non-performing, their valuation objectives, value types, and appraisal methods all change, making external appraisal agencies more specialized in this area. On the other hand, external appraisal agencies enjoy independence, enabling them to carry out appraisals in a manner that is independent, objective, and impartial—thus helping to reduce disputes between banks and their clients.

　　Fifth, actively study valuation methods and value types for collateral and pledged assets.

　　Sixth, actively assist commercial banks in cultivating appraisal professionals.