The Gulf: There's bad loans arising
Arab News - in Saudi Arabia
“The rise in the number of bad debts in the Kingdom is largely because of the lack of prudence on the part of Saudis in general when they invest borrowed money in stock markets without making a scientific analysis of the market trends,” Al-Eqtisadiah daily quoted Abdul Rahman Al-Sultan, an economic expert, as saying.Gulf News - UAE
Sultan said the borrowers’ losses in the stock markets made it impossible for them to repay their loans. According to Al-Sultan the value of loan defaults last year was SR7 billion, up from SR5 billion the year before. This means that nearly 3.6 percent of the SR197 billion in personal loans went sour last year in a significant increase from the pervious year.
The number of loans has exploded since 2000. In years prior to 2000, total personal loans never exceeded SR10 billion in a given year. The recent trends in stock market investing have exacerbated the demand for personal loans.
Al-Sultan said a study he has conducted showed that 97 percent of borrowers are between the ages of 20 and 40 and are government employees in the cities of Riyadh, Jeddah, Makkah and in the Eastern Province. More than 90 percent of all loans were taken out for consumer purchases or to invest in the stock market.
The Federal National Council (FNC) approved on Tuesday several recommendations to solve the growing problem of personal loans.
The session was attended by Obaid Humaid Al Tayer, Minister of State for Financial Affairs, and Sultan Nasser Al Suwaidi, Governor of the Central Bank.
Yousuf Obaid Al Nuaimi, of the personal loans committee, read out the committee's report which was drafted after five meetings since August 2 last year. The committee interviewed many representatives from both the government and private sector.
The report noted a massive growth in loans, from Dh155.2 billion in 2000 to Dh695 billion in 2007. About 10,000 people are in courts or jail because of loan difficulties, according to the report.
The committee noted that laws are not effective to reduce the problem, while the ministry of finance, the central bank, and the community are not capable of putting an end to this problem.
Members of the FNC debated with the minister and the governor over the idea of establishing an independent federal credit body or bureau aiming to provide a centralised data-base and index on the risk of loans.