RIYADH, 27 April 2008 — A Saudi economist expressed deep concern at the increasing tendency among Saudis to borrow large sums of money. While the most common form of borrowing is for car purchases, a considerable amount of money is being borrowed to invest.
“The rise in the number of bad debts in the Kingdom is largely because of the lack of prudence on the part of Saudis in general when they invest borrowed money in stock markets without making a scientific analysis of the market trends,” Al-Eqtisadiah daily quoted Abdul Rahman Al-Sultan, an economic expert, as saying.
Sultan said the borrowers’ losses in the stock markets made it impossible for them to repay their loans. According to Al-Sultan the value of loan defaults last year was SR7 billion, up from SR5 billion the year before. This means that nearly 3.6 percent of the SR197 billion in personal loans went sour last year in a significant increase from the pervious year.
The number of loans has exploded since 2000. In years prior to 2000, total personal loans never exceeded SR10 billion in a given year. The recent trends in stock market investing have exacerbated the demand for personal loans.
Al-Sultan said a study he has conducted showed that 97 percent of borrowers are between the ages of 20 and 40 and are government employees in the cities of Riyadh, Jeddah, Makkah and in the Eastern Province. More than 90 percent of all loans were taken out for consumer purchases or to invest in the stock market.
Al-Sultan tempered his observations by adding that the defaults though weren’t as bad as expected considering the recent losses in the stock market.
“In view of the size of the capital lost in the share market upheavals the number of bad debts, seemingly, is small,” Sultan said.
Most of the debt defaulters were lured by the hope of striking rich in the stock market, according to Al-Sultan.
Though sharp crashes in the market resulted in the ruin of several families, people did not learn any lessons from the experience, he said.
