Saudi personal bank loans reach USD58.4b in 2011

26 Feb 2012

(MENAFN|) A report issued by Al-Eqtisadiah business daily showed a considerable increase in personal loans total value in Saudi Arabia, Arab News reported.

The report said that personal loans value jumped to USD58.37 billion last year from USD2.9 billion in 1998, largely due to a huge increase in the number of banking customers and their reliance on local lenders to meet most of their personal requirements.

Several financial and legal experts warned customers against relying heavily on banks to meet their financial requirements but most of them ignore such warnings, the indicated.

In the third quarter of 2011, the volume of personal loans extended by banks increased USD58.35 billion. These included USD7.4 billion for real estate financing, USD12.3 billion for financing purchase of vehicles and equipment, and USD38.59 billion for other purposes, while credit card loans account for USD2.31 billion.

Until the beginning of the new millennium, the local banks concentrated mainly in extending loans only to companies and firms rather than individuals. However, that changed dramatically as almost all banks are competing to tap the new situation relying on receiving personal loan repayments directly from the salaries of borrowers.

This practice served as a motivation for local banks to extend more personal loans to employees without taking into account their solvency.

The Saudi Arabian Monetary Agency (SAMA) introduced regulations for consumer financing and made them binding for the local banks effective in January 2006.

There was also a SAMA directive that allows banks to treat the salaries of borrowers as security if they take out personal loans. This has helped banks to expand their base of personal lending substantially.