www.arabnews.comShoura Council of Saudi Arabia

Sunday 16 March 2008 (08 Rabi` al-Awwal 1429)
Easy Terms Give Boost to Consumer Lending
Galal Fakkar, Arab News —
JEDDAH, 16 March 2008 — Around 4.8 million Saudis and 461,000 expatriates took bank loans or financed purchases in 2007, according to a recent financial study. The reason? According to one financial analyst: Loans are simply easier to acquire.“An employee can now get a loan just on the strength of his monthly salary serving as the only collateral,” said Nabeel Al-Mubarak, a financial analyst who published a report recently on last year’s growth in consumer debt in the Kingdom.“People, particularly employees of both the private and public sectors, are tempted to take loans because the terms for loans are extremely simple, unlike a few years ago,” he added.

The amount distributed in loans in Saudi Arabia last year rose to SR312 billion, according to Al-Mubarak’s report.

It noted that the number of business loans, which are used to generate short-term liquidity for entrepreneurs to develop their businesses, was on the decline in relation to other forms of lending.

Al-Mubarak said 86 percent of loans are in the form of consumer debt, led by financing for large domestic purchases.

“The main purpose of getting loans was to acquire new cars, houses and furniture or to invest in the stock market,” said Al-Mubarak.

The credit industry is growing. From 2000 to 2007, Saudi banks have doled out SR700 billion in loans. Al-Mubarak observed that citizens tend to take loans to purchase vehicles while expatriates prefer cash loans.

Mortgages on the Horizon

Saudi Arabia is poised to unveil its first mortgage-lending law. Earlier this year, the Shoura Council received the proposal from financial regulators and is currently reviewing it.

The Jeddah-based National Commercial Bank stated in January that the absence of a mortgage law was hindering home buying. Current estimates put Saudi home ownership at about 20 percent. (In comparison, home ownership in the Britain is nearly 70 percent.)

Mortgages are generally considered “good debt” compared to consumer lending (i.e. credit cards) because the loans go to pay for assets (i.e. homes) that potentially appreciate in value. Some banks in the Kingdom have already begun issuing Shariah-compliant home-financing products in anticipation of the new law.

Al-Mubarak stressed the need for strict regulation to keep consumer debt in check. Recent increase in the cost of living is making repayment of loans increasingly difficult for average Saudis.

Rasheed Abdullah, a Jeddah-based Saudi employee, said he took a loan from a commercial bank 18 months ago. Thirty percent of his salary is being deducted every month to repay the loan and now, Abdullah says, he is finding it difficult to make ends meet.

“The creditors are very strict in deducting the monthly installment with no regard for the difficulties we are facing,” Abdullah told Arab News.

Khaled Gashoosh, a young expatriate debtor, said he found a bank loan helpful in the beginning, but later it turned out to be an interminable burden with the rising cost of living.

The daily Al-Watan reported last week that the General Presidency for the Two Holy Mosque Affairs would prohibit automatic salary deposits into the personal accounts of its employees in order to discourage them from taking out loans. Auto deposits are one of the requirements by banks for people to acquire such financing.


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