Salary collateral for personal loans not acceptable: Experts
Dr. Abdul Rahman Al-Sultan, an academic and economic expert, noted this practice serves as a motivation for local banks to extend more personal loans to employees without taking into account their solvency.
He urged concerned authorities to protect borrowers from the dangers and risks involving personal loans and not to allow banks to exploit them.
“Apparently, banks are able to solve all the problems related to personal loans following a directive by Saudi Arabian Monetary Agency (SAMA), the central bank, allowing them to treat the salaries of borrowers as security if they take out personal loans. This has helped banks to expand their base of personal lending substantially,” he said, adding that personal loans with salary collateral forms a major segment of banking credit in the Kingdom.
Speaking to Al-Eqtisadiah business daily, Al-Sultan said banks in any developed country in the world are not allowed to use the salary of individuals as security for personal loans.
“In those countries, banks must seek security sources other than salaries, which represents the source of the borrower’s livelihood and cannot be put in any risk. We see banks in advanced countries accept real estate as collateral to secure a real estate loan or vehicles to obtain a car loan,” he said.
According to Al-Sultan, SAMA’s directive to employers to issue letters to the concerned banks allowing the transfer of employees’ salaries for the repayment of their personal loans virtually serves as an incentive for banks to continue to promote such products.
Subsequently, this would become a big economic burden on employees. “Local banks deduct monthly installments for the personal loan from the salary of the employee before it reaches him.
He has to then budget the remainder to meet other expenses,” he said.
Al-Sultan pointed out that in the past Saudi banks adopted a more cautious approach when extending personal loans. “But now they compete with each other to give loans thanks to the SAMA directive with regard to salary collateral. Until 10 years ago, the total value of personal loans extended by Saudi local banks was less than SR10 billion. However, now the value has exceeded a whopping SR200 billion,” he said.
Personal Loans No Bank Account Needed - News
Dr. Abdul Rahman Al-Sultan, an academic and economic expert, noted this practice serves as a motivation for local banks to extend more personal loans to employees without taking into account their solvency. He urged concerned authorities to protect
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