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CB sets maximum loan-to-value ratio on vehicles at 70%

15 September 2015 05:58 am - 17     - {{hitsCtrl.values.hits}}

In a bid to clamp down on the vehicle imports weighing on the country’s Balance of Payment (BOP) the Central Bank  sent directions to all banks and finance companies imposing restrictions on loans and leases to vehicles.

The directive, which comes into effect from today (September 15), the regulator bars the commercial banks and finance companies granting loans and leases in excess of the 70 percent of the value of the vehicle.

This sets the maximum loan-to-value (LTV) ratio on vehicles at not more than 70 percent.

While the directive is by no means welcoming for the financial institutions as it could restrict growth in their leasing and vehicle lending books, which by far the driving force behind many of the financial institutions, this is a much-awaited measure to curb the menace being created by the unsustainable level of vehicle imports.

However, analysts opine the measure by the Central Bank is “too – little, too late” as it has already caused much damage to the economy and caste their doubts if the measure will in fact achieve the intended objectives.
Even at present, in most instances, the LTV for vehicles hovers around 70 to 80 percent level.

Therefore, they believe the government most likely will be compelled to increase the import duty on the vehicles either in the November budget or before.

Under these circumstances, according to currency dealers, the impact of capping the LTV on vehicles could achieve very little in terms of reducing the pressure on the rupee because seasonal imports are about to kick in from next month onwards.

Even today the Central Bank was seen intervening in the foreign currency market through the state banks as the rupee hit an all-time low of Rs.140 per US dollar.

Hence, unless the strong dollar flows by way of foreign direct investments materializes during the remainder of the year, the rupee will continue its slide and the BOP will most likely end in a huge deficit.

Last week the Central Bank decided to float the rupee when it realized it could no longer prop up the rupee by selling the country’s reserves.

Since the decision to float the currency, the rupee has fallen over 4 percent by now.  

Sri Lanka’s expenditure on vehicle imports during the first six months of 2015 virtually doubled to US $ 600 million.

Sri Lanka’s vehicle imports had been hitting record highs every month till July 2015.

In July, the number of registrations peaked to 62,221 units before it slowed down in August to 50,555 vehicles, largely due to fall in two-wheeler registrations.

Sri Lanka’s vehicle imports have become a bane socially as everyday road congestion creates mental trauma among the road users while the economic loss has already caused much pain to the country’s external account.


  Comments - 17

  • simon Tuesday, 15 September 2015 03:33 PM

    Should freeze all imports of vehicles for next 5 years. We have enough vehicles on the roads and for sale .

    sapu Wednesday, 16 September 2015 06:12 AM

    They are stopping the disaster

    Mfz Tuesday, 15 September 2015 11:56 AM

    Slap a 50% surcharge on interest charged on vehicle leases. that would put a stop to this bubble instantly.

    hjmr Tuesday, 15 September 2015 12:13 PM

    The government needs to focus on improving public transport for more comfort and convenience. Simply increasing the vehicle prices but not providing an alternative comfortable way to travel is nothing short of stupidity

    Wildwine Tuesday, 15 September 2015 12:17 PM

    Good move by the new government.Hope they will also limit / delay issuance of duty free permits to new MPs

    Dee Tuesday, 15 September 2015 12:22 PM

    Finally eyes have opened. Still will not solve the congestion issue unless a peak hour road usage fee is introduced and public transport improved

    Dee Tuesday, 15 September 2015 12:22 PM

    Finally eyes have opened. Still will not solve the congestion issue unless a peak hour road usage fee is introduced and public transport improved

    lkboy Tuesday, 15 September 2015 12:23 PM

    We need Volkswagen to come quickly.

    DHA Tuesday, 15 September 2015 12:23 PM

    Instead of clamping on vehicles why not reduce the number of politicians.....

    udaya Tuesday, 15 September 2015 12:25 PM

    So, my dream buying a vehicle will not come true than

    ibadun Tuesday, 15 September 2015 12:35 PM

    it seems that the country is going to face disaster.

    Roman Tuesday, 15 September 2015 12:49 PM

    It is real simple. Improve public transport,so that a significant amount of people do not need to buy vehicles. Create a manufacturing plant of good vehicles, remove bikes and trishaws that cause most of the traffic problems. Voila! you got a system just like most other road networks in the western world. Increasing taxes when people have no other choice but to buy a car to get from point A to point B is the dumbest idea. Guess what it does not work, no matter what the taxes, the richer will pay.

    Lent Tuesday, 15 September 2015 01:16 PM

    The CB should have made it atleast 65 orLess. Strict guides should be given to banksTo implement the rules. The CB shouldCome up with more control on the financialInstitution especially on lending maintainTight control on current account and cheques.The government just playing around with Interest Rates and exchange rate is not Going to work if they cannot have a soundSystem and control over the customs. FirstlyThe government should come upWith a fool proof duty structure for imports andImplement system to check underinvoicing And vigilance on illegal imports just this alone Surely is going to earn the country a lot of Revenue as whole rather than just a so called Influential and connected few.

    garawi Tuesday, 15 September 2015 02:33 PM

    This amounts to nothing ! The best would be to remove the possibility to sell the duty free permits and selling duty free imported vehicles until 5 years is lapsed. There is big money in selling permits currently! As JVP MP pointed out the wastage in the parliament is enormous!

    Terrence Tuesday, 15 September 2015 02:53 PM

    What about people, who already made the advance payment to Vehicle importer and waiting for their vehicle arriving Sri Lanka in order to arrange Full Lease ? They are in trouble now as they paid advances expecting a Full Lease?

    ANTON Tuesday, 15 September 2015 02:59 PM


    suda Tuesday, 15 September 2015 03:03 PM

    Can u remember their election advertisement. A youth says when a UNP government comes he will buy a car. Bullshit now SLFP and UNP both party MP s will have brand new SUVs . Those youths will have to walk their own way.

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