Each Bank shall formulate a Credit Policy that is approved by its Board of Directors. Such policy should be clearly defined, consistent with prudent banking practices and relevant regulatory requirements, and adequate for the nature and complexity of the bank’s activities. The Credit Policy should be applied on a consolidated bank basis and at the level of individual subsidiaries, as applicable.
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The Policy should, inter-alia, cover the following:
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| | i. | Overall strategy of the bank to determine its risk appetite and risk tolerance levels in relation to credit risk; |
| | ii. | Broad parameters for taking credit exposures to customers, banks, geographic areas/countries, economic sectors, related parties, etc. This should, inter alia, include obtaining a credit report from SIMAH and credit checks about the borrower from other banks; |
| | iii. | Exposure limits for different categories of borrowers. Such limits should be in line with the SAMA’s “Rules on Exposure Limits” as amended from time to time; |
| | iv. | Policy parameters for achieving reasonable diversification of credit portfolio. This would include diversification over client segments, loan products, economic sectors, geographical locations, lending currencies and maturities; |
| | v. | Know Your Customer process for taking credit exposures. Such process should, inter alia, include obtaining information on legal and ownership structure of the corporate borrowers, their governance structure including management profile, beneficial ownership and basic financial information of their major business affiliates / subsidiaries (both local and foreign), details of their global financial commitments (both local and foreign) including the lenders and type of security/collateral provided to them, business plan/financial forecasts of the borrower covering the tenor of the credit facilities,, regular visits to owners of borrowing entities and their guarantors, monitoring involvement of owners/major shareholders in key business decisions, and the requirements for signing credit agreements and associated documents by the borrowers in the presence of bank’s staff. With regard to signing of credit documents, the Credit Policy should provide that credit agreements and associated documents in respect of all those exposures (including funded and / or non-funded facilities) exceeding one percent of total Tier-1 capital of the bank or SAR 100 million whichever is less, must be signed in the presence of bank’s senior officers. The Policy should also lay down an elaborate process for signing the credit documents in respect of all other exposures in the presence of bank’s staff to fully protect the interest of the bank; |
| | vi. | Structuring of credit facilities/transactions with clearly defined purpose and monitoring end use of credit facilities. Furthermore, no financing to be provided to support speculative activities and general purpose activities or any activity which lacks a well-defined purpose for utilization of credit facilities. This will, however, not include the working capital or overdraft facilities provided the end use of such facilities is monitored by the bank to ensure their ultimate utilization for the purpose for which those were granted; |
| | vii. | Broad parameters for providing financing for the subscription of initial public offering(IPO) of shares. Such financing, if provided, should be based on a clear and cautious policy and against adequate collateral with sufficient margins to mitigate the risk of volatility in share prices. The maximum financing for the subscription of IPO of shares shall be restricted to 50% of the amount to be subscribed by a single person. Banks shall also obtain complete particulars of the borrower and verify his credentials including name, identity and credibility before granting any financing (as per SAMA Circular dated 22 Shaban 1413 H); |
| | viii. | Broad parameters for seeking collateral against financing facilities as well as the nature of such collateral. Furthermore, the parameters for taking any exposures without collateral should be clearly spelled out along with the procedures to cover the associated recovery/settlement risk in such exposures; |
| | ix. | Requiring the Senior Management to ensure that the staff involved in credit appraisal, credit administration, credit review and other related functions are well trained to discharge their responsibilities and are periodically rotated in their assignments; |
| | x. | Other related matters to spell out the credit policy parameters of the bank.
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A copy of the Policy duly approved by the Board shall be submitted to SAMA within 30 days of its approval. The Board of Directors or a relevant sub-committee of the Board of each bank shall review their Credit Policy as and when needed but at-least once in every three years. All significant/material changes to the Credit Policy shall be approved by the Board of Directors or a relevant sub-committee of the Board and a copy thereof submitted to the Central Bank within 30 days of such approval. In case of frequent changes in the Credit Policy, banks may choose to submit the revised Credit Policy to the Central Bank once a year incorporating all changes made during a year, within 30 days of the end of a calendar year.
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