The Central Bank of Sri Lanka (CBSL), acting as the macroprudential authority, has issued new directions to licensed financial institutions, introducing maximum caps on loan-to-value (LTV) ratios for vehicle-related credit facilities.

These directives take effect from 18 July, and apply to all licensed commercial banks, licensed specialised banks, licensed finance companies (LFCs), and registered finance leasing establishments (RFLEs).

The previous opportunity to obtain financing of up to 90% of an electric vehicle’s value, based on 2018 guidelines, has been adjusted under these new directions.

Now, financing for commercial vehicles is capped at 80%, for motor cars, SUVs, and vans at 60%, for three-wheelers at 50%, and for other vehicles at 70% of the vehicle’s value.

Furthermore, for registered vehicles that have been used in Sri Lanka for more than one year after their initial registration, credit facilities shall not exceed 70% of the vehicle’s value.

The CBSL states that this 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.

Transitional provisions will apply to letters of credit (LCs) opened prior to the effective date of these Directions (i.e., prior to 18 July) for which credit facilities have not yet been availed for unregistered vehicles.

Accordingly, credit facilities are broadly defined to include finance leases, hire purchase facilities, vehicle loans, and any other type of credit or accommodation granted for the purpose of purchasing or utilising vehicles by end-users.

For the purpose of these directions, the value of the vehicle shall be its market value. This will be determined by the value confirmed by authorised agents for brand new unregistered vehicles, the valuation considered at the time of Customs clearance or the invoice value given by the dealer for reconditioned unregistered vehicles, and the valuation provided by a professional valuer for registered/used vehicles.

Licensed banks, LFCs, and RFLEs are required to ensure that the valuation obtained at the time of granting credit facilities provides a true and fair value.