SAMA unveils new rules for consumer lending

02/09/2014 01:43 AST

Saudi Arabia’s central bank has published new consumer lending regulations which give it the power to cap retail lending at individual banks and limit the fees that banks can charge.

The rules could dent profit growth at banks, especially those that rely heavily on retail activity.

Saudi banks’ combined consumer loan book stood at SR333.8 billion ($89 billion) at the end of March, up 8.6 percent year-on-year. That was 28.7 percent of all their lending.

The regulations, published on the Saudi Arabian Monetary Agency’s (SAMA) website, state: “SAMA may, at its discretion, impose a restriction on a creditor under which its consumer financing portfolio may not exceed a specified percentage of its total financing portfolio.”

They also state that “all fees, costs and administrative services charges” collected by banks must not exceed either 1 percent of the financing amount or SR5,000, whichever is lower.

Previously, processing fees were fixed amounts, regardless of the size of the loan, and varied from SR1,500 to SR2,500 per loan application, according to brokerage EFG Hermes.

“The imposition of caps on fees should substantially dent the retail loan income for banks, in our view, with the impact likely to be felt more by banks that have significant revenue contribution from retail banking business,” it said.

“While the impact of lower retail banking fee income should be felt across all banks, we estimate that the Islamic banks — Al-Rajhi, Aljazira — and NCB IPO, the largest retail banking player amongst conventional banks, should see the biggest negative impact on their fee income growth prospects.”

EFG Hermes said the central bank was likely to use the consumer lending cap after closely monitoring the risk management capabilities of individual banks.

Reuters