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Tue 13 Jul 2010 02:18 PM

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Saudi mortgage law delay 'will hit lenders' - BMI

Analysts say hold-up for legislation will be 'bad news' for kingdom's banking sector.

Saudi mortgage law delay 'will hit lenders' - BMI
MORTGAGE LAW: Business Monitor International said on Tuesday the delay to the proposed mortgage law in Saudi Arabia was a blow to lenders.

The decision by Saudi Arabia's parliament to shelve a vote on the mortgage law "bodes ill for the recovery of bank lending" in the kingdom, Business Monitor International said on Tuesday.

It called the delay "disappointing", adding that the ongoing housing shortage in Saudi Arabia underscored its view that domestic demand and inflation will be higher than elsewhere in the region.

The mortgage law, which has been in the planning stages for almost a decade, was supposed to have been implemented last year.

However, the cabinet sent back the proposed law to the council after it disagreed with some of the provisions approved earlier, Saudi media reported last week.

It was reported on Monday that Saudi Arabia's highest advisory body appointed by the king, the Shura Council, has delayed voting on the new mortgage law until members return from summer recess.

In a new report, Business Monitor International said of the delay: "This is bad news for the banking sector: we had earmarked this development as a potential spark for a return of lending appetite in Saudi Arabia, which could in turn provide impetus for a recovery elsewhere in the Gulf."

It added that ongoing asset write-downs and caution among banks was keeping loan growth "very subdued", in spite of a small recovery over the last couple of months.

Saudi Arabia, the Middle East's biggest economy, needs 1.2 million new homes by 2015, according to Deutsche Bank research, with the enactment of the proposed mortgage law seen boosting demand by an additional 55,000 units a year.

It is expected to spur lending in the kingdom, which has slowed since the onset of the global financial crisis.

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