Saudi Arabia’s central bank has asked local banks to reschedule consumer loans after the government cut bonuses and other financial perks for public sector workers, local media reported on Thursday.
The cabinet announced this week that it would slash ministers’ salaries by 20 per cent and reduce a range of allowances for public employees to help curb a huge budget deficit caused by low oil prices.
Allowances account for as much as 30 percent of many Saudis’ income, so the measures may have a significant impact on consumer spending. In addition, the government said it would base salary payments on the Western calendar rather than the Islamic calendar; since the latter is about 11 days shorter, this is expected to reduce income further.
“The Saudi Arabian Monetary Agency (SAMA) has obliged local banks to reschedule consumer loans for employees whose salaries went down after the cancellation of a number of allowances and bonuses,” Okaz newspaper said without naming its sources.
Central bank officials were not available to comment on the report.
Under banking rules, monthly instalments on consumer loans in Saudi Arabia must not exceed a third of a borrower’s total salary. Outstanding consumer loans totalled SAR343bn ($91.5bn) at the end of June, central bank data shows.
The Maaal financial website quoted central bank vice governor Abdulaziz al-Furaih as saying: “There is an ongoing discussion with banks to study this issue…SAMA is working on maintaining banks’ rights as lenders while mitigating the impact on borrowers affected by the decision.”
He added, “No specific mechanism has been agreed upon so far and the final picture could be clear by the end of this week or next week.”
Maaal reported that banks were negotiating with the central bank to be allowed to deduct up to 40 per cent of customers’ salary payments to service their consumer loans, instead of the 33 per cent currently permitted.
If the central bank declines to increase the deduction, banks will discuss raising interest rates on the loans, it said.