The Central Bank of Sri Lanka has introduced a maximum loan-to-value limit on credit facilities granted against gold collateral, effective Monday, 25 May.

Under the new rule, licensed commercial banks, licensed specialised banks, and licensed finance companies must limit loans secured by gold collateral to a maximum of 70% of the value of the pledged gold.

The Central Bank said the measure was introduced under its macroprudential mandate to strengthen financial system stability and reduce systemic risks by reinforcing prudential credit standards among institutions regulated and supervised by the CBSL.

The decision follows significant recent growth in gold-backed lending. The Central Bank said it had considered the possible impact such growth could have on the financial system if the trend continues.

The move brings a uniform cap across CBSL-regulated banks and finance companies, tightening lending standards in a segment that has expanded amid rising demand for gold-backed credit.