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Finance Minister Ravi Karunanayake addresses the press
conference. Finance Ministry Secretary Dr. R.H.S. Samaratunge is also present – Pic by Lasantha Kumara
By Charumini de Silva
The Government yesterday put the vehicle market on neutral mode giving relief to customers but making business difficult for importers.
At a hurriedly convened press conference, Finance Minister Ravi Karunanayake said the earlier directive made by the Central Bank reducing the Loan-To-Value (LVT) ratio to 70% of vehicle’s value has been revised upward to allow more than 90%.
However, at the same time the Central Bank was directed to instruct all financial institutions to have a 100% margin on import letters of credit (LC’s) for vehicle imports.
Minister Karunanayake justified the twin action, which prompted motor industry analysts to claim zero-impact akin to giving from one hand and taking from the other.
“There were a lot of concerns about the hire purchase vehicles. Till we present the budget on 20 November, we have decided to bring down the upfront payment, which was at 30% to 10%, with effect from today (2),” Minister Ravi Karunanayake told the media yesterday.
In a bid to clamp down on vehicle imports weighing on the country’s balance of payment (BOP), the Central Bank directed banks and finance companies not to provide any vehicle loan amounting to more than 70% of loan-to-value (LVT) of the price of a vehicle with effect from 15 September.
“Our intention is to curb unnecessary vehicle imports. We were informed that with the new directive that was imposed on 15 September there were difficulties in maintaining the secondary market. After the budget we will provide necessary long-term measures on vehicle imports,” he explained.
He noted that the Central Bank’s directive was a good move at this particular moment until the budget was presented with long-term measures and being corrected to go forward with the current 90% LVT.
“There was unnecessary lending which took place and this was putting a bit of a pressure on the lending institutions. Hence, we are saying to be cautious while continuing it,” he said.
The minister said that the county had imported 491,628 vehicles during the first eight months of the year. “This in a way shows that the country’s economy is growing rapidly.”
Last year $ 374 million was spent on vehicle imports during the first seven months while this year in the same period it has increased by 100% to $ 744 million.
Justifying the measure taken on the 90% LVT, Treasury Secretary Dr. R.H.S. Samaratunga told the Daily FT that the industry did not require a high upfront payment on vehicle imports.
“There were many concerns from the industry therefore; we did not want to curtail the growth of the internal vehicle market,” Dr. Samaratunga said.
He also noted that before imposing the new directive the ministry had a series of discussions with vehicle importers.
