The Saudi government’s implementation of a package of five laws composing Saudi Arabia’s new mortgage law is drawing closer, according to Standard and Poor’s.
“This legislation will transform home financing in Saudi Arabia to property-secured lending from the current practice of extending loans based on salary assignment, or banks’ automatic deductions from borrowers’ salaries to repay home loans,” S&P added.
“Once the new mortgage law takes effect, we believe that Saudi banks will expand their mortgage lending activity significantly over time, strengthening their competitive advantage versus nonfinancial companies and foreign banks operating in Saudi Arabia,” Standard & Poor’s credit analyst Paul-Henri Pruvost, said.
“We understand that the Saudi Arabian Monetary Agency (SAMA), the central bank, is currently in informal talks with market participants to fine-tune drafts of three of the five laws, those on real estate financing, financial leases, and the supervision of finance companies. We will monitor any changes SAMA makes to the draft legislation and how they could affect our view of the economic and competitive conditions for the domestic banking system. We believe the traditionally cautious and conservative SAMA will take the necessary time to come up with the proper framework to identify and segregate risks, as it has demonstrated in the past, for instance, when Saudi commercial banks spun off their investment banking lines into separate legal entities in 2007.”