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2017-01-13 | Banking Act Directions No. 1 of 2017

Loan-to-Value Ratios for Credit Facilities in Respect of Motor Vehicles

The Central Bank of Sri Lanka’s Monetary Board has mandated maximum loan-to-value ratios for motor vehicle credit facilities granted by licensed commercial and specialized banks, effective 16 January 2017. The directive establishes tiered caps ranging from 25 percent for three-wheelers to 90 percent for commercial vehicles, with a uniform 70 percent limit for registered vehicles used for over one year. Banks must apply internal risk controls for exempted tourism and transportation fleets, while revoking prior 2015 directions to standardize vehicle financing practices.

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MONETARY BOARD CENTRAL BANK OF SRI LANKA 13 January 2017 | BANKING ACT DIRECTIONS | No. 01 of 2017

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

Issued under Sections 46(1) and 76(J)(1) of the Banking Act, No. 30 of 1988, as amended.

The Monetary Board issues Directions as follows for the implementation of loan to value (LTV) ratios in respect of credit facilities granted by licensed commercial banks (LCBs) and licensed specialised banks (LSBs) for the purpose of purchase or utilisation of motor vehicles.

  1. Empowerment under the Banking Act 1.1 In terms of Sections 46(1) and 76(J)(1) of the Banking Act, in order to ensure the soundness of the banking system, the Monetary Board is empowered to issue Directions to all or any LCB and LSB, respectively, regarding the manner in which any aspect of the business of such banks is to be conducted.

  2. Maximum LTV Ratio 2.1 Commencing 16 January 2017, credit facilities granted by every licensed bank 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; (a) 90 per cent for commercial vehicles (lorries and heavy vehicles); (b) 50 per cent for motor cars, sports utility vehicles (SUVs) and vans; (c) 25 per cent for three wheelers; and (d) 70 per cent for any other vehicles. (ii) 70 per cent in respect of registered vehicles which have been used in Sri Lanka for not less than one year after the first registration.

  3. 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,

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MONETARY BOARD CENTRAL BANK OF SRI LANKA 13 January 2017 | BANKING ACT DIRECTIONS | No. 01 of 2017

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 Licensed banks shall have internal limits and adopt adequate risk management procedures in granting credit facilities for this category of vehicles.

  1. Other Credit Facilities for Vehicles 4.1 A licensed bank 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.

  2. Interpretations 5.1 In these Directions: (i) Credit facilities shall mean finance leases, hire purchase facilities and all other credit facilities granted for the purpose of purchase or utilisation of vehicles. (ii) The value of the vehicle shall be the market value obtained from a professional valuer at the time of granting credit facilities as per the prevailing practice.

  3. Revocation of previous Directions 6.1 The following Directions are hereby revoked: (i) Banking Act Directions No. 02 of 2015 on Loan to Value Ratio for Loans and Advances in respect of Motor Vehicles. (ii) Banking Act Directions No. 03 of 2015 on Loan to Value Ratio for Loans and Advances in respect of Motor Vehicles.

(Signature)

Dr. Indrajit Coomaraswamy Chairman of the Monetary Board and Governor of the Central Bank of Sri Lanka

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