Sri Lanka cuts vehicle and gold loan caps to strengthen lender buffers

Motor car financing LTV cap is lower to 60%, whilst gold-backed lending LTV limit was reduced to 70%.

Sri Lanka’s tighter restrictions on vehicle and gold-backed lending will benefit the risk profile of its lenders, particularly finance companies, according to Fitch Ratings.

“We believe the tighter limit should help moderate risk build-up in gold-backed lending, which has expanded rapidly at banks and finance companies, supported by high collateral values, favourable capital treatment and low provisioning,” the company said in a commentary on 28 May 2026.

On 25 May, the loan-to-value (LTV) cap on motor car financing was lowered to 60% from 70% for vehicles registered for over one year, and to 40% from 60% for unregistered vehicles and those registered for less than one year.

The Central Bank of Sri Lanka also introduced transitional treatment for letters of credit opened before the new direction where financing has not yet been obtained.

Meanwhile, LTV limits on gold-backed lending were also reduced to 70% from 80%, applying to both new loans and rolled-over facilities.

Lower LTV caps should strengthen lenders’ buffers against declines in collateral values and reduce loss severity in the event of borrower default, Fitch said.

The central bank’s prudential measures should benefit finance companies’ risk buffers most, as gold-backed lending and vehicle financing are core products, it said.

“The positive effect on banks’ risk profiles should be more limited, as these products form part of retail lending rather than core balance-sheet exposures,” Fitch said.