What is collateralization ratio in SAP FS-CMS - Collateral Management System?

SAP Term: collateralization ratio

• Component: FS-CMS

• Component Name: Collateral Management System

• Description: The ratio of the distributed collateral value and the current risk or maximum risk of a secured receivable, expressed as a percentage. Formula: Collateralization ratio at current risk = Distributed collateral value at current risk/Current risk*100 Collateralization ratio at maximum risk = Distributed collateral value at maximum risk/Maximum risk*100

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• Key Concepts: 
  Collateralization ratio is a measure of the amount of collateral held by a lender against a loan. It is calculated by dividing the total value of the collateral held by the lender by the total value of the loan. In the context of SAP’s FS-CMS Collateral Management System, it is used to determine the amount of collateral that must be held against a loan in order to protect the lender from potential losses. 
  
  How to use it: 
  The collateralization ratio is used to determine the amount of collateral that must be held against a loan in order to protect the lender from potential losses. The FS-CMS Collateral Management System allows lenders to set a minimum collateralization ratio for each loan, and then monitor and adjust it as needed. This helps ensure that lenders are adequately protected from potential losses due to default or other risks associated with the loan. 
  
  Tips & Tricks: 
  When setting a minimum collateralization ratio for a loan, it is important to consider the risk associated with the loan and set an appropriate ratio. A higher ratio may provide more protection for the lender, but may also make it more difficult for borrowers to obtain financing. 
  
  Related Information: 
  The FS-CMS Collateral Management System also provides other features such as automated collateral monitoring, automated margin calls, and automated collateral optimization. These features can help lenders manage their risk more effectively and ensure that they are adequately protected from potential losses due to default or other risks associated with their loans.