CBSL caps gold loans at 70% LTV
AI-generated image
The Central Bank of Sri Lanka has capped loans granted against gold collateral at 70% of the gold’s value with effect from today (May 25), citing risks to financial system stability due to the rapid growth of gold-backed lending.
The Central Bank of Sri Lanka (CBSL) said the measure was introduced under its macro prudential mandate to strengthen financial system stability and reduce systematic risks by reinforcing prudential credit standards among financial institutions regulated and supervised by the CBSL.
According to the CBSL, the decision was taken after considering the significant recent growth in gold-backed loan facilities and the possible impact such trends could have on the financial system if they continue.
Accordingly, all licensed commercial banks, licensed specialised banks and licensed finance companies are now required to limit loans granted against gold collateral to a maximum of 70% of the value of the pledged gold.
