JEDDAH, 8 May 2007 — Saudi banks have incurred an estimated loss of SR5.8 billion last year due to bad debts and loan defaults, Hassan Al-Maghribi, an economist at the Saudi Investment Bank, said recently. The total of bad debts increased by SR1 billion in 2006 from the amount posted in 2005.
“The bad debt phenomenon occurs in the Kingdom largely because of the widespread public practice of investing their money in the share market, which has been suffering serious upheavals particularly last year,” he told Arab News.
Maghribi attributed the increase in the volume of bad debts to the simplified loan formalities and credit facilities at banks that have made getting loans easy for customers.
The simplification of credit facilities is aimed at helping customers and strengthening economic activities.
A loan is classified as defaulting when the individual or establishment delays or neglects to repay the loans for a period of three months from the required date.
Maghribi added though that the current volume of bad debt in the Kingdom has not reached an alarming rate, as the total volume of personal loans was estimated at SR188 billion. The number of the people who neglected the repayment of their loans was significantly low five years ago.
The banks and other credit companies want to have some laws in place to contain this negative phenomenon, which might pose a serious threat if not tackled before it goes out of control.
Maghribi noted that most of the debtors who failed to return their loans were from the middle class government officials. He said bad debts mostly ranged between SR50,000 and SR1.5 million.
Social, occupational and economic reasons, besides unwise investments without proper knowledge about the companies listed in the share markets, were also the other reasons why some people lost in the stock market, which in turn led to loan defaults, he said.