CBSL tightens LTV ratio on vehicle financing and gold-backed loans

Monday, 25 May 2026 05:42 - - {{hitsCtrl.values.hits}}

The Central Bank of Sri Lanka (CBSL) yesterday announced that its Governing Board has decided to introduce a maximum loan-to-value (LTV) ratio for credit facilities applicable to motor vehicle financing and loans secured by gold with effect from today (25).

Under the new directions, a maximum LTV ratio of 70% has been imposed on credit facilities secured by gold collateral granted by Licenced Banks and Licenced Finance Companies, including existing credit facilities when renewed on or after the effective date.

In addition, the CBSL said the existing maximum LTV ratios applicable to motor vehicle-related credit facilities have been tightened by 10 percentage points.

The policy directions have been issued to Licenced Banks, Finance Companies, and Finance Leasing establishments operating in the country.

The CBSL said the measures were introduced under its macroprudential mandate to promote prudent lending practices, safeguard the resilience of financial institutions, and prevent the build-up of systemic risks within the financial system.

In explaining the decision, the CBSL stated it had observed a significant recent increase in lending linked to gold-backed credit facilities and motor vehicle financing.

The Governing Board noted that if such rapid growth trends continue unchecked, they could pose risks to financial sector stability.

The CBSL also pointed to heightened uncertainties arising from evolving geopolitical and geoeconomic developments, which have contributed to increased volatility in global asset prices, including gold, as well as fluctuations in exchange rates.

According to the CBSL, the recent temporary increase in the surcharge on vehicle imports together with exchange rate movements could artificially inflate vehicle prices in the short term.

“Such fluctuations may affect collateral valuations and alter the underlying credit risk profiles, while continued rapid credit expansion warrants an intervention to prevent a potential build-up of excessive risks within the financial system,” the CBSL added.

The relevant CBSL directives are available online

https://www.cbsl.gov.lk/sites/default/files/cbslweb_documents/laws/CBSL_Act_Directions_No_1_of_2026_e.pdf

https://www.cbsl.gov.lk/sites/default/files/cbslweb_documents/laws/CBSL_Act_Directions_No_2_of_2026_e.pdf