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Wednesday, 18 January 2017 00:00 - - {{hitsCtrl.values.hits}}
By Chathuri Dissanayake
The Government yesterday announced new regulations on leasing facilities for motor vehicles that would drive mixed benefits to different sectors with the tourism industry set to gain maximum benefits from the new measures while small car and three-wheeler aspirants are likely to see their woes continue.
According to a Central Bank circular, the Loan to Value Ratio (LTV) for credit facilities granted by specialised leasing companies for the purchasing of unregistered or registered vehicles with less than one year usage in Sri Lanka has been revised into four categories, compared to the 2015 regulation which gave a blanket limit at 70% of value.
According to the new regulations, vehicles bought by any company engaged in transportation or tourism sector business has been exempt from LTV limitations, providing leverage to leasing companies to go up to 100% of the LVT ratio. The circular however mentions that leasing companies have to introduce internal limits to “adopt adequate risk management procedures in granting credit facilities for this category of vehicles.”
Other commercial vehicles can be leased up to 90% of their value. The circular specifies that lorries and heavy vehicles fall into this category.
However, the new circular has slapped additional controls over credit facilities afforded to three wheelers, limiting the credit ratio to only 25% of the value. Over the years, three-wheelers have outnumbered all other categories of vehicles except for motorcycles in Sri Lanka.
According to statistics compiled by JB Securities, registration of three-wheelers in 2015 outnumbered all other vehicle categories except for two wheel vehicles, majority of which are bought on lease facilities. However in 2016 the number has dropped by almost half. The same year a new regulation imposed a limit on LVT ratio at 70% through the 2016 Budget proposals. Despite the changes, leasing remained the most popular financing option for three-wheeler purchase even in 2016.
The LVT ratio for motor cars, SUVs and vans has also been reduced to 50% of the market value of the vehicles, from the previous 70%. The credit ratio for any other vehicles outside of the specific categories will remain at 70%, the circular stated.
The new regulations were first proposed in Budget 2017 by Finance Minister Ravi Karunanayake. According to Leasing Association of Sri Lanka Chairman Ananda Senevirathne, the Finance Ministry discussed with industry representatives before the new circular was issued. The limit on LVT was first introduced in 2016, through the budget, where a blanket regulation was imposed to limit credit given to 70% of market value of the vehicle purchased. Although the regulation was initially met with resistance, the move was deemed positive for the industry, Senevirathne admitted. However, the impact of the new regulations is yet to be seen, he said.
The Tourism sector welcomed the move to remove restrictions on leasing vehicles, highlighting that vehicle fleets owned by tour operators and service providers needed immediate upgrading.
“This is a positive move. Most of our tourist sector vehicles are outdated and need upgrading. This also helps to deal with expenses and move forward,” said Hotels Association of Sri Lanka Chairman Sarath Ukwatte.
