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WorldApril 1 2015

SAMA governor targets SME and consumer banking

The governor of Saudi Arabia’s central bank, Dr Fahad Al-Mubarak, sees growth potential in consumer banking and SMEs, and is helping banks better cater to these sectors. 
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In Saudi Arabia’s banking sector, success stories have become the common currency. Today, confidence and optimism permeate the country’s financial sector and with good reason. Return on assets for Saudi banks in 2014 was 1.89%, while the system’s Tier 1 capital ratio was 16.03%. Much of this strength is attributable to the Saudi Arabian Monetary Agency (SAMA), the central bank, which has prudently managed the country’s banking sector through a commitment to long-term, sustainable growth.

As the country’s lenders gear up for a renewed period of development in 2015, the governor of SAMA, Dr Fahad Al-Mubarak, believes the booming consumer sector will play an important role in the coming years. “In Saudi Arabia, the scale of consumer loans has expanded steadily over the years. Consumer loans showed an annual average growth of about 16% between 2009 and 2013. They rose to $90.8bn in 2013 and constituted 30.3% of total bank claims on the private sector and 12.1% of GDP [gross domestic product],” he says.

“More recently, they climbed up year on year by 7% to $95.5bn in the third quarter of 2014. Consumer loans are expected to continue their upward trend in the near- and medium-term on account of the high margin for banks, and the ever-increasing desire of households to enjoy better living standards,” adds Mr Al-Mubarak.

Transparency and fairness

Accordingly, SAMA has acted swiftly to ensure that transparency and fairness for consumers is upheld as an increasing array of products and services are offered by the country’s banks. In September 2014, an updated version of the existing Regulations for Consumer Credit was circulated to boost levels of consumer protection.

“The updated regulations are expected to increase disclosure and transparency, facilitate the borrower appraisal process, improve risk management, simplify mechanisms for dispute and default resolutions, and above all raise protection of consumer rights. These improvements are set to lead to a competitive environment that would eventually contribute to the provision of high-quality services in line with market needs and at reasonable prices primarily benefiting the borrower,” says Mr Al-Mubarak.

These reforms have been widely welcomed by Saudi lenders, who see the updated regulations as a further sign of the country’s commitment to implementing international best practice. However, in terms of implications, some local lenders with a larger retail network are expected to face a longer period of adjustment in order to meet the higher disclosure and transparency standards of the new regulation. 

SME lending

Beyond these recent developments in consumer financing, SAMA has worked hard to promote lending to small and medium-sized enterprises (SMEs). By engaging the country’s banks, as well as other public agencies, the central bank has made notable advances to promote access to credit for smaller businesses in Saudi Arabia.

“SMEs have a strong presence in the country as they currently constitute about 90% of all businesses. They have great potential to generate employment opportunities for a large segment of the young Saudi population, add to productivity and help speed up the process of ongoing economic diversification. However, they currently account for about one-quarter of both total employment and GDP. Therefore, there is a need to take initiatives to fully exploit the true potential of SMEs and enable them to lift their contribution to employment and GDP well beyond the 50% mark,” says Mr Al-Mubarak.

However, this will be a challenging task. Most Saudi lenders are still refining their approach to SME clients. Nevertheless, efforts continue and most banks are expecting to increase their SME financing in 2015, albeit from a low base.

“SMEs are deemed to play a vital role in accelerating economic growth and generating employment gains. Therefore, SAMA has continued to take initiatives to promote and facilitate SMEs’ access to finances, one of the key factors to support SME growth. For instance, SAMA spearheaded the establishment of the Saudi Credit Bureau, Simah, which is operative under its supervision since 2004,” says Mr Al-Mubarak.

“Banks are now in a better position to manage their SME credit risk due to access to credit history of prospective borrowers by virtue of the bureau in place. On SAMA’s directive, banks have also established dedicated SME units to facilitate SME-related operations,” he adds. 

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Read more about:  Middle East , Saudi Arabia