The Saudi Arabian Monetary Authority (SAMA) begins implementing the Principles of Responsible Lending for Individuals today, Sunday, August 12.
Last May, SAMA issued the Principles of Responsible Lending to Individuals, which include the procedural principles of responsible lending, namely that the lender must follow a scientific approach and clear, transparent, and documented standards and procedures to assess the customer’s creditworthiness and ability to repay, in accordance with best practices in this field.
The principles stipulate that the lender must review the customer’s credit history after approval to verify their financial solvency, ability to meet monthly credit obligations, and credit behavior, and document this in the financing file.
They also require the lender to request that the customer disclose in writing any financial obligations they may have, such as loans from an employer, friends, relatives, or other obligations.
It further stipulates that the lender must assess all clients“ ability to meet monthly credit obligations, particularly in circumstances where the client’s debt-to-income ratio approaches the upper limits.
The principles also stipulate that the lender must use financial models and tools to assess the customer’s ability to meet monthly credit obligations and the suitability of the financing for the customer’s needs and circumstances.
Affordability ratios for customers with a total monthly income of 15,000 riyals or less are subject to several conditions: Monthly credit obligations arising from the financing and related solely to the monthly deduction from the customer’s total salary must not exceed 33.33%; and for retired customers, 25% of the total salary.
The debt-to-income ratios for customers with a total monthly income of 25,000 riyals are subject to a number of conditions: Monthly credit obligations arising from the financing and related solely to the monthly deduction from the customer’s total salary must not exceed 33.33%, and for retired customers, 25% of the total salary.
Credit obligations arising from financing are subject to the lender’s credit policies, and the lender must ensure that all its customers undergo an assessment of their ability to meet the monthly credit obligations set forth in these principles, and the financing term must not exceed 5 years or 60 months from the date the financing is granted, with the exception of mortgage financing and credit cards.
