A circular issued by the Saudi Central Bank (SAMA) has required banks to subject their submitted plans to review by internal audit departments and obtain approval from their boards of directors, attaching audit reports and board resolutions when submitting them to the central bank. In addition, the plans must be shared with the General Department of Banking Licensing to ensure compliance with approved procedures.
SAMA confirmed that it will not consider any individual requests to extend the holding period for properties, stipulating that such matters must be addressed only through the designated annual plan.
Banks are also required to submit a detailed statement within 30 days after the end of the mid-point of each calendar year, clarifying the properties that have come under their ownership as a result of debt settlements, using the approved form of the General Department of Banking Supervision and Inspection.
Responsibility of the Internal Audit Department
The central bank stressed the importance of liquidating properties within the legally prescribed timeframes and complying with relevant laws and regulations, noting that this circular replaces previous instructions and that the approved templates will be sent via email.
For his part, Hussein Al-Raqib, Director of Zad Consulting Center, stated that the decision to regulate banks’ handling of real estate assets represents an important step toward improving the performance of the banking sector and addressing existing challenges.
In remarks to Al Arabiya Business, he explained that the Banking Control Law prohibits banks from owning real estate except for operational purposes and obliges them to liquidate properties resulting from loan defaults within a period not exceeding three years, unless regulatory obstacles require approval from the central bank.
Accelerating Liquidation Processes
Al-Raqib pointed out that the most notable aspect of the update is the adoption of a semi-annual review mechanism through special forms submitted to the central bank to document properties acquired by banks due to loan defaults, while transferring follow-up responsibility to banks’ boards of directors and strengthening the role of internal audit departments, thereby supporting financial stability and liquidity provision.
He added that large sums remain frozen in distressed real estate assets dating back to periods before the implementation of the mortgage law, due to the transfer of collateral to real estate entities affiliated with banks.
He emphasized that the central bank will play a pivotal role in following up on these files in coordination with relevant authorities to resolve regulatory issues related to property ownership or overlapping title deeds, which have led to hundreds of millions of riyals being tied up at some banks.
Al-Raqib expects banks to accelerate the sale of distressed assets within the statutory three-year period, after previously facing challenges related to market volatility. He concluded by stressing that addressing the issue of distressed real estate assets will help unlock substantial liquidity that has been frozen for years, positively reflecting on the performance of the banking sector and the economy as a whole.
