Consumer loans capture nearly 80 percent of Saudi local banks’ retail loan portfolio which adversely affect the economy as these loans are not directed to boost production, according to local experts.
The experts, quoted by Hayat newspaper, warned against risks posed by some offices spread over different parts of the Kingdom and used to offer loans at high interest rates and buy debts of potential customers.
The said offices are not licensed and have exploited the weakness of the Saudi Arabian Monetary Agency (SAMA) control over such situations coupled with the pressing need of individuals in getting funds, the experts said.
Banking expert Fadl Saad Abu Ainain said banks are dealing cautiously with credits-to-deposits (CTD) ratio for three major reasons. The most important one is that the banks strenuously try to apply SAMA’s standards, which are strict in this regard where loans are allowed in the narrowest ranges under the supervision and authorization of SAMA, he said.
The banking expert said the retail loan portfolio is 80 percent dominated by consumer loans, which have adverse effect on the community. This is despite the fact that lending expansion is a positive matter if directed to production sectors and negative if exploited in consumer sectors.
If the credit-to-deposit ratio is not respected, it will have a negative result and should call the interference from SAMA to rectify the situation but that will take time on the ground that financial commitments cannot be changed easily, he was quoted as saying.
He expressed belief that Saudi banks are suffering from non-commitment of depositors to their depositing contracts and shortness of deposit duration, which will deprive them from achieving the required profit margins.
The efficient management is those who could achieve an optimal balance between credits and deposits to avoid any imbalance between them, he said, adding that the increase of deposits and abstaining from lending will accumulate liquidity and the increased lending at the expense of deposits will expose risks to the bank.
Professor of Accountancy at Taif University Salim Ba Ajaja said most credits (loans) offered by the banks are directed to individuals to purchase land plots or houses, particularly in light of housing crisis experienced by the Kingdom in the last few years.
He said SAMA is monitoring local banks to ensure the ratio of loans to deposits be strictly observed but, however, some excesses exist in some banks.
SAMA has always warned against this trend, notably retail loans, as we experienced a similar risk during the stock boom five years ago when banks hurriedly gave loans to individuals to enter the stock market and their failure to repay credits following the market collapse, he said.
Consumer loans have adverse impact on economy, say experts
