A Study On Loan-to-value Ratio Of Inventory Financing Based On Supply Chain Of Copper

Supply chain finance（SCF）has combined the finance with thephysical economy closely, which provides the better serve for the physicaleconomy, and simultaneously bring a new profit growth point for thecommercial banking sectors. And based on this concept，inventory pledgefinancing service get a rapid development and become the most activebusiness in the field of SCF.But banks should constantly improve theirtechniques of risk management in order to matching with the business ofinventory financing. As a key indicator of risk controlling, loan-to-valueratio should be given more attentions. Furthermore, the determine methodof loan-to-value ratio should continue to optimize for purpose of constantlyimproving the scientificalness and accuracy.Through the introduction of the operational mode, this article analysesthe risk characteristics of the inventory financing, and find that the loan-to-value ratio is very important for risk management of banks.Furthermore, it also discuss the properties andaffecting factors of the loan-to-value ratio. In the research of loan-to-valueratio, the paper takes the supply chain of copper for example, because thatthe copper chain is one of traditional industries and whose chain is veryclearly. Under the hypothesis conditions that futures market is absolutelyeffective and the risk is neutral, we introduce the futures price into thedecision of loan-to-value ratio in the copper industry chain by consideringthe whole running status of the copper chain、the features of inventory、pricing method and so on. It takes the futures price of expiry month asfuture cash flow of the pledge, and considering time value can determinethe highest value of the pledge. But the price changes constantly，so weadopt VaR–GARCH（1，1） model to obtain the value in risk(var)connecting with the fluctuating characteristics of price. By this way, we canget a non-risk value of the pledge, and thus provide a quantitative anddynamic loan-to-value ratio decision method to compensate for imperfection relying on banks’ experience. In addition，by introducing thefutures prices, the bank can realize the risks previously.