Economist and bankers have expressed concern at the increasing trend of borrowing heavily from banks, particularly taking out personal loans and overspending on credit cards.
They blame financial institutions, who have focused on expanding their consumer loans base without taking into consideration public interest.
The Saudi Arabian Money Agency (SAMA) deducts up to 20 to 30 percent from borrowers’ salaries. They say that these controls have contributed to the structural adjustment of the economy.
The latest statistics indicate that personal loans, mostly allocated for consumption, accounted for 80 percent of borrowings. SAMA had earlier announced that the volume of personal loans availed by Saudis amounted to SR300 billion, about 30 percent of the lending portfolio of banks and 11 percent of the size of the domestic economy.
Essam Khalifa, member of the Saudi Economic Association and the Saudi Scientific Association for Quality, said that total volume of loans had gone up from SR275 billion in 2011.
“Banks never stop coming up with new ways to attract clients in view of the high profitability and the ease with which personal loan transactions are handled,” Khalifa said, adding that the number of local borrowers was in excess of 2.3 million citizens.
“Some banks grant personal loans by deducting a third of the salary, but add a mortgage in the process and deduct another third of the salary, which in turn puts a heavy burden on the borrower who has other household expenses to take care of,” pointed out Khalifa.
“This abuse of credit cards leads to accumulating debt without scrutinizing SAMA’s censorship policies, which must assume an active and effective role.”
The main reason for the increase in citizens availing personal loans for consumption, Khalifa said, was the low rates on lendings that banks offer, which stands at 1.5 percent versus a previous rate of 4 percent. “This has opened the floodgates for competition among financial institutions to lure more clients,” he added.
Fadl bin Saad Al-Buainain, an economic expert, said the ratio of consumer loans to mortgage borrowings in the total portfolio of personal loans is a distorted figure internationally. “Consumer loans account for nearly 80 percent of personal loans, while mortgages account for 20 percent, which in itself is at odds with the international rule in this regard,” said Buainain.
He argued that banks caused this distortion in the distribution of the lending portfolio, citing reasons such as the facilities extended for applicants of loans.
Buainain cited the role of banks in 2006 when they extended easy access to loans for speculative investment in stocks, but under different guises like car purchases, house renovation and other such unrealistic expectations.
“This contributed to the increase in volumes of personal loans, with repayment extending over a period of 10 years, which is equivalent to 32 salaries in itself,” he said, adding that the repayment period has now been restricted to five years. The Ministry of Justice played a major role, Buainain pointed out, in controlling the consumer loans crisis when it stopped transactions for putting properties under mortgage.
“This contributed to an increase in mortgages in itself,” he said, arguing that some real estate firms provided mortgages in return for a transfer of property to its name. He demanded that SAMA put an end to this distortion in such a way that helps in reducing the volume of mortgage and investment loans.
Economists concerned at increasing trend of borrowing
