The central bank of Saudi Arabia has asked commercial lenders in the kingdom to reschedule consumer loans for customers hit by the spending cuts in the biggest Arab economy.
Banks cannot add extra fees or change interest rates and they must obtain customers approval for rescheduling the loan deals, according to a statement published on the website of the Saudi Arabian Monetary Agency, or Sama as the central bank is known.
Sama said it wanted to ease the financial difficulties faced by the borrowers, whose incomes had been reduced, which means commercial banks will have to absorb part of the costs in the rescheduling process.
Banks can reschedule loans beyond the usual maximum loan maturity of five years, but they are asked not to deduct more than a third of customers monthly net income towards loan payments. The central bank will assess what decisions should be taken regarding other financing products affected by austerity policies, it said.
Saudi Arabia, Opecs biggest oil producer and top crude exporter in the world, last week cut salaries of ministers by 20 per cent and slashed financial allowances for public sector workers as another measure to compensate for falling oil revenues. Oil sales account for more than 80 per cent of the kingdoms revenues. However, prices of crude have fallen more than 50 per cent from their mid 2014 peak of $115 a barrel and Riyadh has been running an austerity campaign to reduce an estimated $87bn budget shortfall this year.
The spending cuts would affect an estimated two-thirds of working Saudis who are in the public sector; many obtain as much as 30 per cent of their income from such allowances. In addition to dampening consumer spending, the cuts look likely to make it harder for some consumers to service their loans, which totalled some SR343bn ($91.4bn) at the end of June, according to news reports.
Some economists believe the government was aiming to shrink the deficit to nearly 10 per cent of GDP this year from 15 per cent in 2015.
That could require further austerity measures, perhaps new fees or taxes on the kingdoms large workforce of foreigners, the reports added.