In a decisive move to strengthen macroprudential policy and mitigate systemic financial risks, the Central Bank of Sri Lanka (CBSL), acting as the Macroprudential Authority, has issued new Directions to licensed financial institutions to impose maximum caps on loan-to-value (LTV) ratios for vehicle-related credit facilities.
The directive, which takes effect from 18 July 2025, applies to all Licensed Commercial Banks, Licensed Specialised Banks, Licensed Finance Companies (LFCs), and Registered Finance Leasing Establishments (RFLEs).
Thereby, the opportunity provided based on the 2018 guidelines to obtain financing facilities of up to 90% of the value of the vehicle under the electric category has been reduced to 80% for commercial vehicles, 60% for motor cars, SUVs and vans, 50% for three-wheelers and 70% for other vehicles.
The measure is designed to harmonise existing LTV caps across institutions and reinforce prudent lending practices, particularly for credit extended for the purchase or utilisation of motor vehicles, the Central Bank of Sri Lanka (CBSL) said in a statement.
Accordingly, credit facilities granted by every licensed bank, LFC and RFLE for the purpose of purchase or utilisation of motor vehicles shall not exceed the following percentages of the value of such vehicles:
(i) 70 per cent in respect of registered vehicles which have been used in Sri Lanka for more than one year after the first registration.
(ii) (a) In respect of unregistered vehicles and registered vehicles which have been used in Sri Lanka for less than one year after the first registration;
(b) In respect of Letters of Credit (LCs) opened prior to the effective date of this Direction, for which credit facilities have not yet been availed under Direction 2, I(ii)(a) above for unregistered vehicles, transitional provisions in Annexure I shall apply.
Other Credit Facilities for Vehicles
Licensed banks, LFCs, and RFLEs shall not grant credit facilities for the purpose of purchase or utilisation of motor vehicles, other than credit facilities granted in accordance with the directions above.
Interpretations
1. Credit facilities shall include finance leases, hire purchase facilities, vehicle loans and any other type of credit facilities or accommodation granted for the purpose of purchase or utilisation of vehicles by end-users.
2. (a) Licensed Commercial Banks and Licensed Specialised Banks shall have the meanings assigned to such terms under the Banking Act, No. 30 of 1988
(b) Licensed Finance Companies shall mean finance companies licensed in terms of the Finance Business Act, No. 42 of 2011 to carry on finance business
(c) Registered Finance Leasing Establishments shall mean companies registered within the meaning of the Finance Leasing Act, No. 56 of 2000 to carry on finance leasing business
3. For the purpose of these Directions, the value of the vehicle shall be the market value. Licensed banks, LFCs and RFLEs may use the following in determining the value of vehicles:
(i) Unregistered Vehicles:
(a) Brand new vehicles. agents -Value confirmed by authorised
(b) Reconditioned vehicles - Valuation considered at the time of Customs clearance or invoice value given by the dealer
(ii) Registered/used vehicles - Valuation provided by a professional valuer
4. Licensed banks, LFCs and RFLEs shall ensure that the valuation obtained at the time of granting credit facilities provides a true and fair value.
In respect of Letters of Credit (LCs) opened prior to the effective date of these Directions, (i.e. prior to 18 July 2025), for which credit facilities have not yet been availed under Direction 2, 1(ii)(a) for unregistered vehicles, licensed banks, LFCs and RFLEs shall not exceed the following percentages referred to in Table 1.1 on the value of such vehicles, when granting credit facilities.
