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2018-02-08 | Direction No. 2 of 2018

Loan to Value Ratios for Credit Facilities granted in respect of Motor Vehicles

The Central Bank of Sri Lanka issued Finance Leasing Act Directions No. 02 of 2018 to impose maximum Loan to Value ratios on credit facilities granted by Specialized Leasing Companies for motor vehicles. These regulations, effective from January 1, 2018, cap financing at 90% for new electric vehicles and commercial transport, while restricting non-electric passenger cars to 50% and used vehicles to 70%. The directive also exempts tourism and transportation companies from these limits for fleet purchases, provided the vehicles are not transferred within one year, and revokes previous 2017 directions.

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CENTRAL BANK OF SRI LANKA 08 February 2018 FINANCE LEASING ACT DIRECTIONS No. 02 of 2018

LOAN TO VALUE RATIOS FOR CREDIT FACILITIES GRANTED IN RESPECT OF MOTOR VEHICLES

Issued under section 34 of the Finance Leasing Act, No. 56 of 2000.

The Director of the Department of Supervision of Non-Bank Financial Institutions (hereinafter referred to as “Director”) issues Directions as follows for the implementation of a Loan to Value (LTV) ratios in respect of credit facilities granted by Specialized Leasing Companies (SLCs) for the purpose of purchase or utilization of motor vehicles.

  1. Empowerment under the Finance Leasing Act 1.1 In terms of section 34 of the Finance Leasing Act, the Director is empowered to issue general Directions to registered finance leasing establishments which are public companies referred to in paragraph (c) of section 3 of the Finance Leasing Act (hereinafter referred to as “Specialized Leasing Companies”).

  2. Maximum LTV ratios 2.1 Commencing 01 January 2018, credit facilities granted by every SLC for the purpose of purchase or utilisation of vehicles shall not exceed the following percentages of the market value of such vehicles. (i) In respect of unregistered vehicles and registered vehicles which have been used in Sri Lanka for less than one year after the first registration;

Table 1 – Loan to Value Ratios

Vehicle CategoryVehicle Class of Department of Motor TrafficElectric VehiclesOther
Commercial vehiclesC1, C, CE, D1, D, DE, G1, G, J90%90%
Motor Cars, SUVs and VansB (other than light trucks & single cabs)90%50%
Three wheelersB190%25%
Any other vehicleA1, A, light trucks & single cabs categorized under B90%70%
Hybrid Motor Cars, SUVs and VansB (other than light trucks & single cabs)70%

(ii) 70 per cent in respect of registered vehicles which have been used in Sri Lanka for more than one year after the first registration.

  1. Exemptions from the maximum LTV 3.1 The limits in Direction 2 above will not be applicable to credit facilities granted to any company engaged in tourism and/or transportation for purchase of vehicle fleets to be utilized for their core business operations, provided that such vehicles financed shall not be transferred to any person or entity within one year from the date of the first registration. 3.2 SLCs shall have internal limits and adopt adequate risk management procedures in granting credit facilities for this category of vehicles.

  2. Other credit facilities for vehicles 4.1 An SLC shall not grant credit facilities for the purpose of purchase or utilisation of motor vehicles, other than credit facilities granted in accordance with Directions 2 and 3 above.

  3. Interpretations 5.1 Credit facilities shall mean finance leases, hire purchase facilities and all other credit facilities granted for the purpose of purchase or utilisation of vehicles by end-users. 5.2 The value of the vehicle shall be the market value. SLCs may use the following for the purpose of valuing vehicles: (i) Brand new vehicles - value given by authorized agents (ii) Reconditioned vehicles - valuation considered at customs or invoice value given by the dealer (iii) Registered vehicles - value given by a professional valuer 5.3 SLCs should ensure that the valuation is obtained at the time of granting credit facilities and provides a true and fair value. 5.4 Fleet of vehicles referred to in Direction 3.1 shall mean two or more vehicles. 5.5 Company engaged in tourism referred to in Direction 3.1 shall mean a company registered with the Sri Lanka Tourism Development Authority or any other authority to provide services to tourism. 5.6 A company engaged in transportation referred to in Direction 3.1 shall mean any business entity registered at any state authority for the purpose of business of transportation of goods or passengers.

  4. Revocation of previous Directions 6.1 The following Directions are hereby revoked: (i) Finance Leasing (Loan to Value Ratios for Credit Facilities in respect of Motor Vehicles) Direction No. 01 of 2017. (ii) Finance Leasing (Amendment to Directions on the Loan to Value Ratios for credit facilities in respect of Motor Vehicles) Direction No. 02 and No. 03 of 2017.

(Signed) W Ranaweera Acting Director, Department of Supervision of Non-Bank Financial Institutions, Central Bank of Sri Lanka

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