Imposing caps on fees will significantly reduce income from retail loan, EFG-Hermes

Saudi Arabian Monetary Agency’s decision to impose caps on fees that banks charge for retail loans may affect substantially the retail loan income for banks, especially lenders whose major revenue come from retail banking business, EFG-Hermes, the investment bank, said, according to Reuters.

The Islamic banks - Al Rajhi, Aljazira - and National Commercial Bank, the largest retail banking player amongst conventional banks, should see the biggest negative impact on their income from loan fees, it added.

SAMA, Saudi Arabia’s central bank, has issued new consumer lending regulations to limit fees on loans and cap retail lending. Banks should abide by the rules by Sept 16, 2014. Fees, costs and administrative services charges imposed by banks must not exceed either 1 percent of the financing amount or 5,000 riyals, whichever is lower, SAMA’s regulation stipulate.