(Adds further details, background)
By Marwa Rashad and Andrew Torchia
RIYADH/DUBAI Oct 2 Saudi Arabia's central bank
said on Sunday it had given commercial banks instructions to
reschedule consumer loans of customers hit by recent cuts in
government spending due to low oil prices.
The announcement underlined growing pressure on the Saudi
economy and banking system as the government, its oil export
revenues down sharply, struggles to curb a budget deficit which
totalled a record 367 billion riyals ($98 billion) last year.
Last week the cabinet said it would cut ministers' salaries
by 20 percent and reduce financial allowances for public sector
workers. About two thirds of working Saudis are in the public
sector and many obtain as much as 30 percent 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 343 billion riyals at the end of
The central bank said it wanted to alleviate the
difficulties of borrowers whose incomes had been reduced, and
its instructions suggested commercial banks would be required to
assume substantial costs in the rescheduling process.
Banks must obtain customers' approval to reschedule loans
and they cannot add extra fees or change the interest rate, the
central bank said.
In some cases, banks will be allowed to reschedule loans
without sticking to the usual maximum loan maturity of five
years, but they cannot deduct more than a third of customers'
monthly net income to make loan payments. Local media had said
banks were lobbying for permission to deduct up to 40 percent.
The central bank will assess what decisions should be taken
regarding other financing products affected by austerity
policies, it said.
One local economist estimated the government would save
about 50 billion riyals annually with the pay cuts announced
last week, but it is not clear whether that sum, and drastic
reductions to spending on state projects introduced early this
year, would reduce the budget deficit sufficiently.
Some economists believe that to retain the confidence of
financial markets, the government is aiming to shrink the
deficit to near 10 percent of gross domestic product this year
from 15 percent in 2015.
That could require further austerity measures, perhaps new
fees or taxes on the kingdom's large workforce of foreigners.
The Saudi stock market plunged 3.1 percent on Sunday to
its lowest close since March 2011 partly because of fears that
such steps could be imminent.
(Editing by Greg Mahlich)