A new set of regulations from the Central Bank affecting vehicle loans

The Central Bank of Sri Lanka has published a new series of directives introducing new stringent maximum limits for the Loan-to-Value (LTV) ratio, targeting loan facilities provided for the purchase or use of motor vehicles. This step has been taken with the primary objective of regulating and controlling the amount of credit flowing into Sri Lanka's motor vehicle market.

The Central Bank has made this decision under Section 105(1) of the Central Bank of Sri Lanka Act No. 16 of 2023 and by exercising its powers as the Macroprudential Authority. The Loan-to-Value (LTV) ratio is the maximum percentage of a loan provided by a bank or financial institution relative to the total value of a vehicle.

It is noteworthy that these new directives have been issued to apply generally to all financial institutions regulated and supervised by the Central Bank of Sri Lanka. Accordingly, Licensed Commercial Banks and Licensed Specialized Banks as defined under the Banking Act No. 30 of 1988, Licensed Finance Companies (LFCs) under the Finance Business Act No. 42 of 2011, and Registered Finance Leasing Establishments (RFLEs) under the Finance Leasing Act No. 56 of 2000 must mandatorily comply with these directives. These ratio limits will apply to Finance Leases, Hire Purchases, vehicle loans, and any other type of credit facilities provided by these institutions to end-users for the purchase or use of vehicles. Furthermore, financial institutions are prohibited from providing any credit facilities for vehicles outside these directives.

Through these new regulations, introduced to be effective from May 25, 2026, the maximum loan amount that can be provided for vehicles already registered and used in Sri Lanka for more than one year after their first registration has been limited to a maximum of 60 percent of the vehicle's market value. This means that when purchasing such a vehicle, the buyer must possess at least 40 percent of the vehicle's value, and only the remaining amount can be obtained through financial institutions.

However, when issuing loans for unregistered new vehicles and registered vehicles used in Sri Lanka for less than one year after their first registration, this LTV ratio has been prescribed with different values under two main categories based on the vehicle categories designated by the Department of Motor Traffic. A clear distinction has been made between vehicles used for commercial purposes and vehicles used for personal use. The maximum loan ratio for vehicles belonging to classes C1, C, CE, D1, D, DE, G1, G, J, which fall under the commercial vehicle category, as well as light trucks and single cabs classified under category B, has been set at 60 percent. However, for motor cars, Sport Utility Vehicles (SUVs), vans, three-wheelers, and any other passenger transport or personal vehicle category (other B, B1, A1, A categories excluding light trucks and single cabs in category B), this maximum limit has been significantly reduced to 40 percent.

The Central Bank further emphasizes that the 'value' of the vehicle, which forms the basis for approving these loan facilities, refers to its true market value. The methodologies to be followed for accurately assessing vehicle values have also been clarified. For unregistered brand-new vehicles, the value confirmed by authorized agents should be used, while for reconditioned vehicles, the valuation considered at the time of customs clearance or the invoice value provided by the dealer should be taken as the basis. Furthermore, for registered or used vehicles, an appraisal report provided by a professional valuer is essential. It is the responsibility of all institutions to ensure that this valuation obtained at the time of granting loan facilities represents the true and fair value of the vehicle.

To overcome certain practical difficulties that may arise in the market with the introduction of new regulations, the Central Bank of Sri Lanka has also introduced several special transitional provisions. These transitional rules specifically apply to Letters of Credit (LCs) opened before May 25, 2026, for the importation of unregistered vehicles, where loan facilities have not yet been obtained. These rules will operate under three timeframes.

As the first timeframe, a separate rate will apply to vehicles imported under Letters of Credit opened after November 08, 2025, and before May 25, 2026. In this case, the maximum loan ratio for commercial vehicles and light trucks has been set at up to 70 percent, and for personal vehicles including motor cars, SUVs, vans, and three-wheelers, the maximum ratio has been set at up to 50 percent. Secondly, another series of different rates will apply to Letters of Credit opened after July 18, 2025, and before November 08, 2025. During this period, loans can be obtained for up to 80 percent of the vehicle's value for imported commercial vehicles, and up to 60 percent for motor cars, SUVs, and vans. Additionally, for this period, loan facilities have been approved with a maximum of 50 percent for three-wheelers, and a maximum of 70 percent for other vehicles and single cabs.

The third timeframe is the rule applicable to old Letters of Credit opened before July 18, 2025. Here, loan ratios have been provided categorized as electric vehicles and other vehicles. It is noteworthy that for all electric vehicles imported under these old Letters of Credit, a maximum loan amount of up to 90 percent of the value can be obtained. While 90 percent is also provided for other fuel commercial vehicles and light trucks, for regular motor cars, SUVs, and vans, it is limited to 50 percent, and for three-wheelers, it is a very low 25 percent. The maximum LTV ratio provided under these old Letters of Credit for Hybrid motor cars, SUVs, and vans is also 50 percent. This document, issued with the signature of Dr. P. Nandalal Weerasinghe, Governor of the Central Bank of Sri Lanka, further states that with the implementation of these new directives, the previously effective Central Bank of Sri Lanka Act Order No. 03 of 2025 has been completely repealed.

Central Bank Directives Series PDF below

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CBSL Vehicle Loan Law