Gold loan rules to hit Sri Lanka’s finance firms harder than banks

New rules order both to adopt similar risk weightings.

Sri Lanka’s tighter regulations on gold-backed lending will be manageable for its banks, said Fitch Ratings.

“We expect only a modest effect on banks’ capital ratios due to their lower gold-loan exposures,” Fitch said.

“We estimate the impact on their common equity Tier 1 ratios at 2 basis points (bp) to 35bp, based on end-March 2026 exposures,” it added.

Under the new directions, banks and finance companies will adopt similar risk weightings. Gold loans with loan-to-value (LTV) ratios below 70% will carry a 10% risk weight for both sectors, up from zero. For exposures in the 70% to 100% LTV band, they will apply a 40% risk. Exposures above 100% LTV remain risk-weighted at 100%.

Fitch expects the impact on its rated finance companies to be larger than on banks because gold-backed lending accounts for a larger share of their loan books. Underwriting has also been more aggressive, it said.