Saudi economists and legal experts warned that the situation would worsen and go out of control if the issue was not solved at the earliest.

Saudi legal expert Abdullah bin Abdul Aziz Al-Fallaj put the number of defaulting debtors in the Kingdom at 65,000 involving SR2.5 billion while the total number of debtors stood at three million.

Market observers recalled that all local banks were vying with each other to hand out as many loans as possible to individuals and institutions until the Saudi stock market suffered its first crash in 2006.

That was the time when loans were needed for various purposes.

While industrial companies and real estate firms sought better credit facilities for investments, others obtained loans to build houses on plots received under government grants.

It was also a time when most people were lured by attractive gains in the stock market as local banks were ready to offer any amount in loans.

But such investors suffered losses when the market crashed and their debts remained unpaid.

Legal expert Al-Fallaj also points out that some people, driven by greediness, obtained loans and invested heavily in the stock exchange. They had no clue about changing fortunes in markets.

But these investors were shattered when the market crashed and did not have enough funds to settle their loans.

A large number of loans given by banks were defaulted and legal measures proved futile in most cases as debtors did not have the money to settle their dues.

Al-Fallaj, who stressed the need for a comprehensive study to find out practical solutions to the issue, said another reason for the rapid rise in the number of defaulters was an increasing tendency among the people to take loans to buy non-productive consumer goods.

Financial consultant Muhammad Al-Shemaimary believes that exact data on defaulted debts in the Kingdom were not available because banks have not revealed their level of exposure.

“A loan obtained for a good investment can be repaid as it will bring in returns and, besides, it will contribute to the growth of the national economy. On the other hand, loans taken for consumer purposes do not produce any profit but only lead to losses,” he pointed out.

Saudi economist Muhammad Al-Jadeed warned that the defaulting tendency would only worsen unless the local and global economy made a rapid recovery.

He, however, expressed satisfaction over the present practice of banks to set tough conditions for granting loans.

According to another Saudi economist Khaled Al-Hamidan, the volume of defaulted debts by Saudi businessmen is more than SR150 billion.

He attributed the tendency of some businessmen not to repay loans to the “soft” conditions set by banks in the past.

He said the crisis surfaced as early as 2003 when local banks adopted a policy of issuing loans on the basis of an applicant’s reputation - without solid guarantees.

Another reason, according to him, was the government policy of exempting debtors from their liabilities on national events - or even without any occasion - as the government was prompted by a desire to end the default issue.

But this policy did not help solve the issue because the value of loans given by government agencies was far less than bank loans.