SAMA restricts credit card cash withdrawals

Saudi Arabian Monetary Agency (SAMA) has tightened restrictions on cash withdrawals from banks using credit cards in an effort to head off any consumer debt problems.

“The move by SAMA is in line with global best practice that is mindful of consumers and their protection,” commented John Sfakianakis, Middle East director at Ashmore Group.
“Also the move is in line with retail credit that is made available by banks in the non credit card consumer business that is capped at 30 percent. All in all this is a timely move,” he told Arab News.

Previously, under an informal industry arrangement customers could obtain cash advances equivalent to as much as 50 percent of their monthly credit card spending limits, paying hefty fees to do so, bankers told Reuters.
From last Thursday, an official ceiling of 30 percent has been imposed, according to regulations posted on the central bank’s website, which said the rules aimed to protect cardholders and introduce international best practice.
“The restriction is really more directed at protecting the public more than the banks. It is also a seasonal tendency during the summer vacation,” said Fawaz Alfawaz, Riyadh-based economic consultant.

“Although I do not really see a systemic risk for the banks, let alone the financial system, the concern is well placed. Hence, the restriction is needed to reduce a growing exposure,” he told Arab News.
SAMA last year published new consumer lending rules which gave it the power to cap retail lending at individual banks and limit fees that banks can charge. It has a reputation as a conservative and cautious regulator, Reuters added. 

Consumer lending, including credit card use, climbed 8.8 percent to SR322 billion ($85.9 billion) in 2014, according to SAMA.
Another report said that the consolidated balance sheet of Saudi national banks in the month of May showed that total credit, excluding investments in securities, have reached a record of SR1.3 trillion. 

By the end of May, total fresh loans extended by Saudi banks to public and private entities reached 54.9 billion since the beginning of the year, around 21.3 percent less than total fresh loans during the same period last year.

Analyzing banks’ credit activity shows that with the current pace of growth in deposits, the loan/deposit ratio is at a healthy 79.3 percent as of May, a recent report from the National Commercial Bank NCB) said. 
Such level of capacity utilization indicates a low risk environment despite looming US Fed rate hikes and Saudi fiscal challenges, stated the NCB’s Saudi Economic Review for July 2015.