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Kingdom of Saudi Arabia creates more resilient credit climate through new consumer legislation | Saudi Arabia 2015 Saudi Arabia's banking sector, like its peers elsewhere in the area, has benefited from an increase in demand for consumer credit as the business community cushioned the impact of the 2008 turmoil in the international credit markets. According to Aljazira Capital, the proportion of personal loans in the overall loan volume rose from around 21% in 2008 to 29%.

This is why the recent intervention of the SAMA in the field of consumer policy is largely considered to have been on time. In this respect, the most obvious efforts were made at the end of 2014, when the regulatory authority adopted new consumer credit ordinances that allowed it to limit consumer credit to certain banking institutions and to limit charges.

Whilst the credit line is a useful instrument to keep the markets cold when needed, it is the fee ceiling that drives SAMA's consumer policy agenda forwards. According to the new regulation, all bank levies, expenses and administration fee may not be higher than 1% of the amount of finance or SR5000 ($133), whichever is lower.

Under the new regulations, the cost of early repayments will also be reduced and bankers will be required to inform customers of changes in charges within one months. In addition, a new request for clear yearly interest plans from bankers responds to a past problem that occurred when creditors sometimes provided deceptive fixed interest charges that were not exactly the actual interest payment by a debtor.

Although the new ordinance has a slightly adverse impact on banks' net interest revenues, it is welcomed by most financial market researchers as a useful move towards industry stabilisation. SAMA' s promotion of consumer welfare, however, is only one part of a much broader policy. Consumer issues will be of particular interest to the present Governor and a separate unit was set up during his term of office to supervise him.

PRIVACY & PRINCIPLES: In the view of the country's creditors, the most important result of the establishment of the Ministry is the new consumer policy frameworks. As of September 1, 2013, the regulatory authority requires banking institutions to adhere to a number of consumer safety standards deriving from the G20's High-Level Principles on Financial Consumer Protection, first drafted by the OECD in 2011.

ISD's repeat of this exercise in Saudi Arabia set out a number of core principals that are now mandatory for operators: treating clients fairly and equitably; clear and readily available information such as charges, prices and possible sanctions; providing information and raising public apprehension among current and prospective clients; ethical conduct and work, where banking is primarily accountable for the interests of clients; protecting against frauds, involving the establishment of controls to fight frauds, misappropriation and abuse; protecting private life, involving the definition of clear objectives for collecting them; and protecting the right to private life, involving the definition of clear objectives for collecting them; and ensuring that the information is clear and understandable;

Complaint management, where the consumer should have recourse to equitable, accessible and Accountable schemes on the basis of the SAMA regulations; contest, where the consumer should be able to research, benchmark and transfer goods and provide a service from other suppliers; third party, where third party institutions are now held liable for the action of their authorized representatives; and conflicting interests, where the bank is obliged to draw up a directive in writing on this subject and to reveal to the consumer possible conflicting interests.

On the other side of the equation, SAMA has defined a number of consumer obligations to be communicated to the retailer. They require the borrower to be truthful with the information he provides, to use the product or service within the specified limits, to prevent risks and to report problems to the creditor.

SAMA' s consumer credit fee ceilings may have a moderate impact on the viability of Saudi Arabian banking, but as part of the regulatory authority's integrated consumer policy framework, they pledge to create a more robust credit landscape that will bring benefits to the country's finance companies like any other.

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