The Central Bank of Sri Lanka (CBSL) states that the decision to limit Loan-to-Value (LTV) ratios for motor vehicles has come into effect from today (25).

The Governing Board of the CBSL has tightened the maximum Loan-to-Value (LTV) ratios applicable to credit facilities granted for motor vehicles and has also introduced a maximum LTV ratio for credit facilities secured by gold, effective from today (25).

These measures were taken by the CBSL in line with its macroprudential authority to promote prudent lending practices, safeguard the resilience of financial institutions, and mitigate the potential build-up of systemic vulnerabilities, the Central Bank said in a statement.

The CBSL noted that, in arriving at these decisions, the Governing Board considered the recent significant growth in credit extended through facilities secured by gold and motor vehicle financing, as well as the potential impact on the financial system if such trends continue at the current pace.

It added that heightened uncertainties stemming from evolving geopolitical and geoeconomic developments have increased volatility in asset prices, including gold, alongside recent exchange rate fluctuations.

“The temporary increase in the surcharge on vehicle imports and exchange rate movements could temporarily inflate vehicle prices. Such fluctuations may affect collateral valuations and alter the underlying credit risk profiles, while continued rapid credit expansion warrants intervention to prevent a potential build-up of excessive risks within the financial system,” the CBSL noted.

Accordingly, a maximum LTV ratio of 70% has been introduced for credit facilities secured by gold collateral granted by Licensed Banks and Licensed Finance Companies, including existing credit facilities that are renewed on or after the effective date.

Moreover, the existing maximum LTV limits applicable to credit facilities granted for motor vehicles have been tightened by 10 percentage points.

Accordingly, from today (25), the CBSL will impose the following maximum LTV ratios on vehicle loans for unregistered vehicles and vehicles used in Sri Lanka for less than one year after first registration:

• 60% for commercial vehicles
• 40% for cars, SUVs, vans, three-wheelers, and other vehicles.