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  • Part Eleven: Finance Policies and Procedures

    • Chapter One: Finance Policies

      • Article 52

         1.The Finance Company shall define written Finance policies setting out rules and procedures for granting Finance, including but not limited to, classification of credit worthiness, procedures for dealing with, deteriorating credit rating and default Finance, types of accepted collaterals, methods for calculating their values, monitoring, administration and enforcement of collateral, and risk provisioning.
         2.All Finance policies and all amendments to policies must be approved by the Board and submitted to SAMA by the Finance Company.

    • Chapter Two: Exposure Limits

      • Article 53

        Exposure includes the value of all assets that subject to any credit risks, including but not limited to, Finance Agreements; securities; and advanced payments to other entities and clients; all commitments or other obligations to grant Finance or to make a payment or deliver assets to a third party with a right of recourse against a client or another third party, equity, participating interests and assets in respect of which the Finance Company is the lessor.

      • Article 54

         1.The aggregate finance amount offered by a Finance Company shall not exceed five times the capital and reserves for Finance Companies carrying out real estate finance activities and three times the capital and reserves for Finance Companies carrying out other finance activities, unless a non-objection letter from SAMA is obtained.
         2.SAMA may increase the limit on the aggregate finance amount offered by a Finance Company to the extent it deems appropriate, taking into account the financial position of the Finance Company, its performance and the market conditions.

        This article has been amended in accordance with His Excellency the Governor's Decision No. 72/M SH T, dated 20/06/1440H.

      • Article 55

         1.The aggregate of Large Exposures must not exceed the paid-up capital and reserves of the Finance Company unless the Finance Company has obtained a non-objecting letter from SAMA.
         2.The Finance Company may not incur an Exposure to a Borrower of (10%) or more of its paid up capital and reserves or an Exposure to a group of Borrowers where one of them has direct or indirect control over the other members of the group of (25%) or more of its paid up capital and reserves, unless it has obtained a non-objecting letter from SAMA thereupon.

      • Article 56

         1.Any of the following is a related party for the purposes of this Regulation: 
          a.Any member of the Board or its committee;
          b.Any member of Senior Management;
          c.Any person directly or indirectly holding or controlling (5%) or more of the capital or voting rights of the Finance Company, and any entity in which such person directly or indirectly holds or controls (5%) or more of the entity’s capital or voting rights;
          d.Any person directly or indirectly holds or controls (5%) or more of any class of securities that give their holders the right to a share of the profits or income of the Finance Company;
          e.Any entity in which the Finance Company directly or indirectly holds or controls (5%) or more of the shares or interests or voting rights; and
          f.Any ancestor or descendant up to the second degree, or spouse of any of the persons listed in the preceding Subparagraphs (a) through (d).
         2.In accordance with Article 12 of the Law, the Finance Company may incur an Exposure to a related party only on a commercial basis and after obtaining sufficient collateral so that the Finance may not exceed (60%) of the collateral, and if the Finance is more than (500,000) five hundred thousand riyals, there must be a consensus decision of the Board to do so. 
         3.The Finance Company may not incur an Exposure to a related party of (10%) or more of its paid-up capital and reserves without obtaining a non-objecting letter from SAMA. In all cases, the aggregate of all Exposures to related parties must not exceed (50%) of the paid-up capital and reserves of the Finance Company. 
         4.The Finance Company must not incur any Exposure to a related party that either directly or indirectly holds or controls (25%) or more of the shares, interests or voting rights in the Finance Company or in which the Finance Company holds or controls directly or indirectly (25%) or more of the shares, interests or voting rights. 
         5.The Finance Company must not incur an Exposure to any of its employees that is not a related party in excess of four months’ salary of such employee, except through Finance programs organized by the company for its employees, approved by the Board and after obtaining a non-objecting letter from SAMA. 
         6.Without prejudice to the public and private rights prescribed by laws, any Board member of the Finance Company or any external auditor who receives Finance in breach of any of sections (1/b), (1/c), or (1/d) of Article 12 of the Law, shall be deemed dismissed from the date of receiving the Finance, and the Finance Agreement in this case shall be deemed void. 

    • Chapter Three: Finance Procedures

      • Article 57

         1.The Finance Company must, upon the approval of the Consumer verify his credit record to confirm his solvency, repayment capacity and credit conduct. The confirmation of such must be documented in the Finance file.
         2.The Finance Company must, upon the approval of the Borrower, register his credit information at one or more of the companies licensed to collect credit information in accordance to the relevant laws, regulations and instructions. Such information shall be updated throughout the period for dealing with the Borrower.
         3.The Finance Company must decline the Finance request in case of the absence of obtaining an approval from the Consumer or Borrower, specified in paragraphs 1 and 2 of this Article.

      • Article 58

         1.The Finance Company shall administrate levels for granting Finance shall be determined based on the type and Amount of Finance, including defining Finance types that require the approval of more than one person and the decision for acceptance or refusal of the Finance shall be subject to the powers granted for each administrative level. 
         2.The Finance Company must obtain a non-objecting letter from SAMA before extending any of the following: 
          a.Finance to a foreign Borrower that is not a resident in the Kingdom.
          b.Finance in a currency other than the Saudi riyal.

      • Article 59

         1.The Finance Company must follow a scientific method and a written, transparent and clear standards and procedures to asses credit worthiness of the applicant for the Finance and his ability to repay, according to the best practices in this field, and the Board must approve these standards and procedures and review them at least once every two years, and updating them if necessary. The Finance Company must apply these procedures before granting Finance and it shall be documented in the Finance file.
         2.Risks related to an Exposure must be evaluated and classified before the Finance decision is made. The risk classification must be reviewed at least annually.
         3.The Finance Company must define procedures for the early detection of risks to signal out Finance that show signs of increased risk and develop quantitative and qualitative indicators for the early identification of risks.

      • Article 60

         1.In accordance with the policy and procedures of risk management, approved by the Finance’s Company Board, the Finance must be by collaterals
         2.All collateral must be enforceable and capable of valuation in order to be acceptable. Personal guarantees must be evaluated based on the net assets and/or net earning of the guarantor.*
         3.The value and legal validity of collateral must be assessed prior to the granting of the Finance.
         4.If the value of the collateral is dependent to a substantial degree on the financial situation of a third party or fluctuations and conditions of the market, the collateral must be evaluated on a regular basis, and the procedures stated in the agreement to strengthen those collateral shall be taken when its value decreases. The counterparty risk of the third party must be reviewed as appropriate.
         5.Decisions of the collateral and reserve risks must be made by the control function.

        * This paragraph has been amended in accordance with His Excellency the Governor's Decision No. 72/M SH T, dated 20/06/1440H.

      • Article 61

        In exception to the provisions of Article 60 of this Regulation, the Finance Company may grant Finance without a collateral, if the following applies:

         1.The total Amount of Finance received by the Borrower, without collateral does not exceed (100,000) one hundred thousand Saudi riyal based on the data of the Borrower’s credit record.
         2.The Borrower has no history of un-settled debt, conflict or a standing credit lawsuit, insolvency, bankruptcy or liquidation through the past ten years, or checks without balance by him through the past five years, based on the data of the Borrower’s credit record.
         3.The Borrower must not be a related party.

      • Article 62

        The Finance Company must make provisions for contingent losses and risks in accordance with International Financial Reporting Standards. SAMA may require that the Finance Company to make an additional provision or more for contingent losses and risks.

      • Article 63

         1.The Finance Company must define cases in which an Exposure requires special Observation; these Exposures shall be reviewed on an ongoing basis to determine whether further actions may be required. There must be clear rules determining when a Finance must be transferred to personnel specializing in restructuring, scheduling or winding up.
         2.The Finance Company must define criteria for assets value reduction, provisioning Standards including country risks provisioning, taking into account of the International Financial Reporting Standards, and ensure that these are applied consistently.