How do Banks determine their Margin Lending LRV?

Hi Chris,

The Loan to Value Ratio  (LVR) – not LRV – in margin lending is assessed by lenders based on the perceived risk profile of the stock/asset. Below is a breakdown of some of the key considerations that determine an asset’s LVR:

• The greater the volatility the lower the LVR: Stocks with large price swings pose higher risk for lenders, since their value can fall quickly, triggering a margin shortfall.
• Low liquidity = low LVR: Assets that can be quickly and easily sold on the market are preferred by lenders.
• Size does matter: large established businesses are regarded as less risky and typically receive higher LVRs.
• A margin lender will also consider a portfolio as a whole, providing a concetratred LVR for a non diversfied or highly correlated portfolio, or provide a higher rate of lending under a diversfied LVR scenario for a well diversfied portfolio.

We actually think it’s a pretty guide on perceieved risk, with the key takeaway for us more about the position size taken than avoiding a stock altogether with a low LVR.