What are the reasons why customers cannot switch from one bank to another in Saudi Arabia?
- Banking in Saudi Arabia is a complicated function which includes many agreements between employers and preferred banks. It is common practice that an employer will have a payroll relation with a bank and all employee salaries will be transferred to the same bank.
- Employees have the right to choose any additional banks to have their relationship with; but the transfer of salaries depends only on the banks that the employers have relationships with.
- Most employers do not have an issue with transferring salaries to other banks upon the request of their staff; but this does not apply to banking sector employees.
- Many financing products (auto/personal/mortgage/credit cards) are restricted by salary transfer, and customers often need to submit a clearance letter to their employers in order to have their salary transferred to a different bank.
- Banks only place restrictions on those customers who may have a debt with them, and will have customers sign a promissory note at the time of availing the financing (a legally binding document) to ensure that the agreed amount is returned to the bank at the end of the tenor (or earlier in case of early settlement)
Can customers refinance their debt?
- Personal Finance customers have two options with regards to refinance. According to SAMA regulations, customers are eligible for refinancing after repaying 20 % of the borrowed principal.
- Buyover financing is a product which is offered by most banks and allows customers to close their current financing with the current bank and move to a new bank.
- Various banks have different requirements which are used to determine a customer’s eligibility for buyover financing (finance transfer) and may include minimum salary, minimum financing amount and sector of employment.
Have the rules and bank policies on switching banks in Saudi Arabia changed at all?
- Buyover financing was not previously offered and customers were often forced to stay with their existing bank for the entire tenor of their financing
- With the issuance of the new consumer finance regulations, SAMA has instructed banks to assist customers in their request for switching banks
- The regulations also include strict turnaround times for this process and banks are required to share with SAMA on a timely basis a report outlining all cases where customers have chosen to end their banking relationship and move to other banks.
Does SAMA give customers the right to switch banks?
- SAMA has mandated that all customers have a right to move to a different bank however the main requirement is that all debts to the existing banks must be settled.
What are the reasons why some customers want or need to switch from one bank to another?
- There are multiple factors which are behind the decision of a customer to switch banks with regards to their financing
- The most common reason is the availability of better rates.
- Another motivator for customers to take this decision is the availability of better products which give the customer flexibility with their financing (e.g. consolidated payments, multiple products with single bank, etc.)
What are the steps involved in switching from one bank to another?
- Firstly the customer needs to find another bank who is willing to buyover their existing financing
- Secondly, the customer has to inform their current bank of their wish to switch banks
- Thirdly the customer needs to ensure that all debts with their existing bank are settled. In some cases, the new bank would issue a managers cheque for the amount required to settle all debts with the current bank; upon receiving a confirmation of the settlement of debt, the customer’s liabilities can be transferred to the new bank.
- A customer is required to submit to their new bank a ‘letter of no liability’ after closing their debts (personal/auto/mortgage/cc). This letter along with the transfer of the first salary from the employer are important requirements for switching banks.
- Finally, in most cases, customers would be required to reassign their salary to the new bank in order to obtain new financing. As with buyovers, the new bank will buy the customer’s existing debt and move it to their own bank, and customers would be able to access the net cash after the bank receives the customer’s first salary.