Affordability the key paradigm in long-term debt sustenance in consumer lending in Saudi Arabia
Having grown its market share in the mortgage business over the last four years, Samba Financial Group plans to transform itself into a diversified retail banking player. April 24, 2013 | ResearchWhile mortgage markets in Asia Pacific are taking a hit from tightening regulations (China, Hong Kong and Singapore), struggling property demand (Taiwan and South Korea) and bad bank debts (Vietnam), their peers in Saudi Arabia are getting ready for take-off. Prior to 2006, Saudi Arabia’s personal loan sector grouped a myriad of different lending businesses under the consumer finance portfolio, with tenures up to 20 years. Customers were provided with bank loans based on their salaries under consumer finance rather than under a well-structured mortgage loan programme. Greater demand fuelling domestic mortgage market in Saudi Arabia Figure 1. Mortgage volume in Saudi Arabia expected to reach $22 billion by 2015 In 2006, the Saudi Arabian government put defined debt burden and tenure guidelines into place with a maximum tenure of five years for individuals, hitting banks hard, since they could no longer cater effectively to optimise the commerciality of mortgage products. Banks were left in limbo in subsequent years as the legal and regulatory environment on mortgages was only based on the general Sharia law. The interim period was marked by a vacuum in legal and regulatory issues, uncertainties in valuation, title and repossession. Hence, the banking industry wasn’t able to leverage fully on its capacity to lend, and ended up pricing mortgage loans higher than they should have, compensating for risk adjusted returns in an unregulated context. Nevertheless, the real estate mortgage financing business grew at a 27% compounded annual growth rate (CAGR) between 2008 and 2012. When the government drafted its mortgage law in 2012, it paved the way for the country’s central bank to lay out detailed operating guidelines – to be introduced in coming weeks – while clarifying and codifying the structure, reposs... Please login to read the complete article. If you already have an account, you can login now or subscribe/register.
Categories: Mortgage, Retail Banking, Saudi ArabiaMortgage,retail,Saudi Arabia, Mortgage,Retail Banking,Saudi Arabia, Keywords:Eisa Al Eisa, Samba Financial Group, Citibank Eisa Al Eisa, Samba Financial Group, Citibank
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