CBSL introduces maximum Loan to Value ratio for gold backed lending & tightens LTV ratios for motor vehicles
The Governing Board of the CBSL decided to introduce a maximum LTV ratio for credit facilities secured by gold and tighten the maximum LTV ratios applicable to credit facilities granted in respect of motor vehicles with effect from 25 May 2026. These steps are taken by the CBSL in line with its macroprudential authority, in order to promote prudent lending practices, safeguard the resilience of financial institutions, and mitigate the potential build-up of systemic vulnerabilities.
In arriving at these decisions, the Governing Board took into consideration the recent significant growth in credit extended on account of facilities secured by gold and motor vehicle financing and the potential impact on the financial system if such trends continue at the current pace. Heightened uncertainties stemming from evolving geopolitical and geoeconomic developments have elevated volatility in asset prices including gold, alongside recent exchange rate fluctuations. The temporary increase in the surcharge on vehicle imports and exchange rate movements could inflate vehicle prices temporarily. 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.
Accordingly, a maximum LTV ratio of 70 per cent has been introduced for credit facilities secured by gold collateral granted by Licensed Banks and Licensed Finance Companies, including existing credit facilities when renewed on or after the effective date. Moreover, the existing maximum LTV limits applicable on credit facilities granted in respect of motor vehicles have been tightened by 10 percentage points.
The aforesaid macroprudential policy directions issued to Licensed Banks, Licensed Finance Companies and Registered Finance Leasing Establishments are available via the following web links.