The Saudi Central Bank (SAMA) has issued strict directives to all banks operating in the Kingdom, requiring them to submit detailed annual plans for the liquidation of real estate assets acquired as a result of settling the debts of defaulting clients. This move comes as part of the Central Bank's efforts to enhance the financial efficiency of the banking sector and ensure that financial institutions comply with the regulatory framework governing their operations.
According to the recent circular, banks must provide the Saudi Arabian Monetary Authority (SAMA) with these plans within 30 days of the end of each calendar year. These instructions are based on the fundamental principles of the Kingdom's banking supervision system, which prohibits banks from engaging in non-banking activities, such as trading in or owning real estate, unless necessary for the bank's operations or for housing its employees. If a bank is compelled to acquire real estate to settle a debt, the system grants it a three-year grace period to liquidate and sell the property. This measure aims to prevent banks from becoming real estate holding companies and to protect their cash flow.
The new instructions emphasized the necessity for liquidation plans to be comprehensive and updated annually, covering all assets, whether those still within the permitted holding period or those nearing expiration. To ensure governance and transparency, the Central Bank stipulated that these plans must undergo rigorous review by each bank's internal audit department and be formally approved by the boards of directors before submission. Furthermore, the instructions stressed the rejection of any individual requests to extend holding periods outside the framework of the annual plan.
As part of its periodic monitoring, the circular mandates that banks submit a detailed statement every six months (within 30 days of the middle of the calendar year) outlining the status of their acquired properties. These measures are of paramount economic importance, as they aim to protect the banking sector from the volatility of the real estate market and ensure the availability of liquidity necessary to finance various economic activities, rather than tying up capital in fixed assets. This regulation also helps prevent real estate monopolies by financial institutions, thereby promoting a more balanced local real estate market.
This regulatory tightening comes to replace previous instructions, confirming the role of the Saudi Central Bank in maintaining the stability of the financial system, and ensuring that banks focus on their essential role in financial intermediation and supporting the national economy, away from the risks of long-term real estate assets.
