The Federation of Chambers clarifies SAMA's circular regarding the liquidation of banks' real estate

The Federation of Saudi Chambers issued an important clarification to dispel any doubts surrounding recent media and economic discussions regarding the circular issued by the Saudi Central Bank (SAMA). The Federation emphasized that the directives requiring banks operating in the Kingdom to submit annual plans for the liquidation of real estate acquired as a result of settling the debts of defaulting clients do not represent a new mechanism or a fundamental change in monetary and banking policies. Rather, they are regulatory measures to govern existing operations.

The reality of the new organization and the mechanisms for lifting [the ban/reform]

The National Real Estate Development Committee of the Federation of Saudi Chambers clarified that the aforementioned mechanism is already in place in the banking sector, and that the only new aspect is the "regulation of the reporting mechanism." This regulation aims to govern real estate data held by banks, as the circular mandates that banks provide the central bank with accurate and up-to-date data within a period not exceeding 30 days, during two specific periods: mid-year and year-end. This is done according to an approved model that ensures the standardization of reports submitted by all financial institutions.

The regulatory and legal context of bank real estate

This measure comes within the framework of the Saudi Central Bank's strict supervisory role to ensure the soundness of the financial sector. According to the Kingdom's banking regulations, banks are prohibited from engaging in non-banking business activities, including real estate trading, except in cases of extreme necessity or when such activities are required to settle a debt. The regulations typically grant banks a specific timeframe (often three years) to liquidate and sell these properties, ensuring that banks do not transform into real estate companies and maintaining the necessary liquidity levels for their core banking operations.

Economic importance and impact of the decision

This regulation carries significant economic implications at both the local and sectoral levels:

• Enhancing transparency: Ensuring banks' commitment to periodically disclose the size of their frozen real estate assets, thus giving (SAMA) a clearer view of potential risks.
• Revitalizing the real estate market: Pressuring for the liquidation of these properties according to annual plans contributes to injecting real estate supply into the market, which may help to balance supply and demand.
• Focus on core activity: This ensures that banks are not preoccupied with managing real estate assets for extended periods at the expense of their financing and investment role.

Press reports had previously indicated that SAMA had directed banks to prepare comprehensive liquidation plans, including properties whose regulatory period was about to expire, or those that required an extension, in addition to properties that were still within the regulatory deadline, which confirms the financial regulator’s keenness to deal with the non-performing assets file with high efficiency.