Sri Lanka revises maximum financing limits for vehicles

• 90% financing limit for EVs removed while aligning them with respective vehicle category 

• Leaves LTV at 70% for registered vehicles used in Sri Lanka for more than 1 year after 1st registration
• Motorcars, SUVs and vans, which had a 50% LTV, now able to borrow up to 60% of value
• Three-wheelers can now borrow up to 50% of value, unlike earlier 25%

The Central Bank issued fresh guidelines to the banks, finance companies and leasing establishments, outlining the new upper limits for loans and lease facilities granted to purchase vehicles, while removing the preferential high limit assigned for electric vehicles (EVs), effective from July 18.

In what is referred to as the loan-to-value (LTV) ratio in banking parlance, it stipulates the maximum amount, which can be loaned from the value of an asset or in this case, the value of the vehicle.

While leaving the LTV at 70 percent for registered vehicles used in Sri Lanka for more than one year after the first registration, the Central Bank removed the 90 percent LTV assigned for EVs under all categories, which was hitherto possible, while identifying the EVs under their respective vehicle category such as commercial to motorcars to three-wheelers to any other type of vehicles for which new LTVs were assigned.

The measure will effectively take away the preferentially high LTV made available for EVs until July 17 and will be identified with other vehicle types.

For instance, the motorcars, sports utility vehicles (SUVs) and vans, which had a 50 percent LTV, are now able to borrow up to 60 percent of their value, effective from July 18.

If an EV falls under any of those categories – car, SUV or a van – such a borrower will also be able to borrow up to 60 percent of its value.

Hence, the distinction between EVs and non-EVs have effectively been ended with this directive issued by the Central Bank.

Another major beneficiary of this measure is those who want to purchase three-wheelers, as they can now borrow up to 50 percent of the value of the three-wheeler from an earlier 25 percent. For commercial vehicles, one can borrow up to 80 percent of the value of the vehicle, down from an earlier 90 percent.

Any other vehicle, including categories A1, A and single cabs categorised under category B, enjoys an LTV of 70 percent, unchanged from an earlier upper limit.

“The licensed banks, licensed finance companies and registered finance leasing establishments shall not grant credit facilities for the purpose of purchase or utilisation of motor vehicles, other than the credit facilities granted in accordance with (these directions),” the directive issued by the Central Bank said.

The Central Bank further said the measure was aimed at enhancing the efficacy of macro-prudential policymaking and mitigating systemic risks, by harmonising the existing caps on the LTV ratio to a larger extent and reinforcing the prudential credit standards in the financial institutions regulated and supervised by the Central Bank.