– The Central Bank of Sri Lanka (CBSL) has issued a new directive introducing strict maximum caps on Loan-to-Value (LTV) ratios for credit facilities granted for the purchase or utilization of motor vehicles. Operating in its capacity as the macroprudential authority under Section 105(1) of the Central Bank of Sri Lanka Act, No. 16 of 2023, the central bank aims to regulate credit flowing into the automotive market. The directive applies across the board to all financial institutions regulated and supervised by the CBSL, including Licensed Commercial Banks, Licensed Specialized Banks, Licensed Finance Companies (LFCs), and Registered Finance Leasing Establishments (RFLEs).

Effective from May 25, 2026, the new regulations dictate that financing for registered vehicles used in Sri Lanka for more than one year after their initial registration will be strictly capped at 60 percent of the vehicle’s market value. For unregistered vehicles and recently registered vehicles that have been used for less than a year, the maximum LTV ratio is split into two distinct categories based on vehicle classes designated by the Department of Motor Traffic. Commercial vehicles—including light trucks, single cabs, and larger transport classes—will be eligible for a maximum LTV ratio of 60 percent. Meanwhile, financing for personal vehicles, including motor cars, SUVs, vans, three-wheelers, and motorcycles, is capped at a much lower threshold of 40 percent.

To manage the implementation of these caps, the CBSL has introduced specific transitional provisions for unregistered vehicles tied to Letters of Credit (LCs) that were opened prior to May 25, 2026, but have not yet had credit facilities availed.