Analysts, however, criticized the concept of taking loans to invest in the stock market as a negative and failed experiment.
Banking sources said a large number of investors — who obtained five-year bank loans in 2006 — had been successful in settling a lion’s share of their dues before the maturity period.
The sources also that said local banks started receiving about SR10 billion per month as loan repayments since the beginning of the year.
They expect almost all these investors to clear their dues before the end of the current year, said a report in Al-Eqtisadiah business daily.
Some economists and banking experts, however, warned citizens against another possible economic and social crisis in case they moved to take advantage of new credit facilities from banks that are currently flushed with liquidity.
The “February Catastrophe” or “Black February,” as some analysts describe it, was a major turning point in the economic and social history of a large number of Saudis in 2006.
Influenced by a market-euphoria, young men and women raised funds from property sales and bank loans to invest in the capital market.
But their investments were wiped out when the market crashed suddenly in February 2006.
A major segment of the Saudi society, including women and youngsters, could not escape from the fallout of the market crash as they suffered big losses in the stock market.
These investors are now heaving a sigh of relief after settling most of their bank loans.
This positive development is now encouraging banks to expand their credit facilities.
Economists, however, warned citizens against becoming loan defaulters for a second time.
They stressed that citizens should be fully aware of the fallout of any similar developments in future.
A prominent economist, who requested anonymity, told the newspaper that almost all the loans taken by Saudis to invest in the stock market had been settled over the last five years.
“This has boosted the liquidity of Saudi banks so that they can extend more credit facilities to the citizens in future. However, the citizens are not fully aware of the risks that involved in taking such loans without having required arrangements and planning for the same,” he said.
“The social and economic fallout of the stock market crash that devoured most of the personal loans taken by the citizens over the past years is a telling example of how people could fall into problems after making investments without a proper strategy and understanding of market conditions,” he added.
The economist suggested investors, eyeing fresh loans to invest in the market, should be based on lessons learned from the past failed experiment.
Abdul Rahman Al-Sultan, professor of economics at Imam Muhammad bin Saud Islamic University, said some citizens were still not in a position to erase personal loans in view of their difficult financial conditions, and it would take some more years to clear those debts.
The noted economist and writer also did not rule out the possibility of a section of the Saudi people turning to the real estate market, leading to a price surge in the sector.
Al-Sultan urged fresh borrowers to adopt make decisions on their investments.
“The stock market had lured a large number of people to pump huge investments into this sector over the past years and losing their investments and consequently suffering from numerous social and economic woes,” he said, while expressing regret over the poor awareness among some citizens about the negative impact of loans.
Some people, who had settled their bank arrears, are now planning to obtain loans again for vacation trips, he said.
Some experts, however, ruled out the repeat of the 2006 crisis.
Hamad Al-Sheikh, undersecretary for quality and development at King Saud University, said the level of banking credit facilities has returned to normal levels by the end of last year.
“There are several citizens who have the capacity to make investments in the stock market either through their revenues or through taking banking loans. But the stock market crash that happened in the Arab world as a whole has prompted them to shun new investments as they lost faith in it,” he said.
Dr. Al-Sheikh also said the changes in the Kingdom’s financial regulations and the measures taken by financial organizations had contributed to a substantial improvement to the current financial conditions.
“I believe that some people may turn to the real estate market to cash in on the current boom witnessing this sector. But there is also a possibility that some of them may turn strongly to the stock market.” he said, while predicting a possible boom in the stock market in near future.
He said a number of positive factors such as soaring oil prices, higher earnings in the banking sector and strong economic conditions would boost the stock exchange.
