CBSL Cracks Down on Vehicle and Gold-Backed Lending Amid Rising Financial Risks
May 25, Colombo (LNW): The Central Bank of Sri Lanka (CBSL) has brought into force a fresh set of lending restrictions aimed at curbing growing financial vulnerabilities linked to vehicle financing and loans backed by gold.
The new regulations, which took effect today (25), were introduced by the Governing Board of the CBSL in an effort to encourage more disciplined lending practices and strengthen the stability of the country’s financial sector.
Under the revised framework, financial institutions will now be required to adhere to stricter Loan-to-Value (LTV) limits when issuing loans for motor vehicles. In addition, the Central Bank has, for the first time, imposed a ceiling on LTV ratios for credit facilities secured against gold.
According to the CBSL, the move follows a sharp increase in lending tied to both vehicle purchases and gold-backed borrowing in recent months. Officials warned that allowing these trends to continue unchecked could expose banks and finance companies to elevated levels of risk.
The Central Bank also pointed to mounting global economic uncertainty and geopolitical tensions, which have contributed to fluctuations in gold prices and instability in currency markets. Such conditions, it said, could directly affect the value of collateral held against loans and increase pressure on the financial system.
Authorities further noted that recent exchange rate movements and temporary tax-related increases on imported vehicles have artificially pushed up vehicle prices. This, in turn, may distort asset valuations and encourage excessive borrowing.
As part of the latest measures, licensed banks and finance companies will now be permitted to lend only up to 70 per cent of the value of gold pledged as collateral. The rule will also apply to existing gold-backed credit facilities renewed from today onwards.
Meanwhile, maximum LTV ratios for vehicle loans have been reduced by 10 percentage points across several categories. For unregistered vehicles and those used locally for less than one year after their first registration, the revised limits are as follows:
- 60 per cent for commercial vehicles
- 40 per cent for cars, SUVs, vans, three-wheelers and other vehicle categories
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