Circular Re. Disclosure of Interest Rates on Financing and Savings Products

In the Name of Allah, the Most Gracious, the Most Merciful Saudi Central Bank (SAMA) Headquarters

Banking Policy Department
Ref. No.: 41068291
Date: 1441/12/02
Attachments: 8 pages

Circular

To: Respected Banks and Financing Companies,
Peace, mercy, and blessings of Allah be upon you.

Subject: Disclosure Rules for Financing and Savings Products Rates.

With reference to the Bank's Circular No. 70318/67 dated 1440/11/25 and the Supplementary Circular No. 41044254 dated 1441/06/25, which stipulated the Disclosure Rules for Financing and Savings Products Rates.

Please be informed that the Disclosure Rules for Financing and Savings Products Rates (attached) have been updated, which repeal and replace the instructions issued under the aforementioned circulars.

For review and implementation within fifteen (15) working days from its date, and to provide the Bank with evidence of compliance with these Rules.

Yours sincerely,

Fahd bin Ibrahim Al-Shathri
Deputy Governor for Supervision

Distribution Scope:

• Banks operating in the Kingdom.
• Financing companies operating in the Kingdom.

Telegram Address: Markazi, Telex 404400, Phone 4633000, Fax 4662414 P.O. Box 2992, Riyadh 11169

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Disclosure Rules for Financing and Savings Products Rates July 2020

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Table of Contents

Content	Page No.
1. Introduction	3
2. Scope of Application	3
3. Definitions	3
4. Disclosure Requirements	5
5. Disclosure Table Examples for Individuals	6
6. Disclosure Table Examples for Small/Micro Enterprises	8
7. Effective Date	8

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Disclosure Rules for Financing and Savings Products Rates

1. Introduction
   These Rules aim to provide market transparency regarding the Annual Percentage Rate (APR)/Annual Equivalent Rate (AER) for various products offered by banks and small/micro enterprises, as well as those offered by financing companies to individual customers as determined by the Bank. This will enable individual customers and small/micro enterprises to compare these rates across different financing and savings products offered by banks and financing companies.

The Bank has issued this update to the Disclosure Rules for Financing and Savings Products Rates, which repeals Circular No. 70318/67 dated 1440/11/25 and Supplementary Circular No. 41044254 dated 1441/06/25, with underlined text indicating additions or modifications.

2. Scope of Application
   All banks and financing companies licensed by the Bank in the Kingdom of Saudi Arabia and subject to its supervision.

3. Definitions

Annual Percentage Rate (APR):	The discount rate at which the present value of all installments and other payments due from the beneficiary, representing the total amount payable by the beneficiary, equals the present value of financing amounts available to the beneficiary, on the date the financing or its first installment becomes available (in accordance with Article 81 of the Executive Regulations of the Financing Companies Control System).
Annual Equivalent Rate (AER):	The rate for a savings or investment product containing more than one compounded interest/profit during the year. It is calculated on the assumption that any paid interest/profit is included in the principal balance, and at the next due date; interest/profit is paid on the slightly higher balance resulting from adding the paid interest/profit to the principal.
Credit Card Purchase Rate:	The rate applied to transactions (cash or credit) conducted via a credit card. The rate is applied to balances not fully paid by the end of the billing cycle.
Financing Amount:	The financing amount recorded in the balance sheet granted to the customer.

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Maturity:	Contractual maturity of balance sheet financing granted to the customer: The final repayment date for loan and financing products at which the principal and all due interest/profits are payable. Contractual maturity for savings products: The final repayment date for savings products at which the deposit principal and due interest/profits to the customer are payable.
Monthly Installment Amount:	The installment amount the customer must pay to the bank or financing company each month until the financing is fully settled.
Minimum Repayment Amount:	The lowest amount a customer can pay on a credit card to avoid late payment penalties. It is calculated as a percentage of the outstanding balance, plus any added fees.
Months to Clear Balance:	The number of remaining months if the customer pays the minimum credit card repayment each month.
Market Value of Property:	The negotiated price between buyer and seller in a commercial transaction, after meeting the bank's specified valuation criteria. The agreed price may not equal the current asking price or another purchase offer amount for the property.
Loan-to-Value Ratio (LTV):	The ratio of financing provided by the bank or financing company to the value of the purchased property, defined as the market value of the property.
Repayment Type:	Payment of interest/profits only, or interest/profits and principal, or otherwise.
Early Settlement Fees:	Fees payable by the customer to the financing entity upon early settlement of financing before the end of the scheduled credit facility maturity period, also referred to as penalty fees.
Deposit Amount:	The amount deposited with the bank in savings or investment products.

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4. Disclosure Requirements
   a) Banks and financing companies must disclose information on all financing and savings products (if any) for individuals in detail and clearly on the website, channels, and marketing materials according to the disclosure tables provided in Section (5) of these Rules. b) Banks and financing companies must disclose information on all financing and savings products (if any) for small/micro enterprises in detail and clearly on the website, channels, and marketing materials by disclosing the price range for each product according to the disclosure tables provided in Section (6) of these Rules. c) If disclosure tables cannot be included in some channels and marketing materials (e.g., printed publications), including or referring to any prices or competitive features in a misleading manner for consumers is prohibited, and the website must be referenced for further product details. d) A calculator must be developed for each financing or savings product showing the price and periodic installments based on consumer inputs. If unavailable, disclosure must be made by providing multiple price examples based on financing/deposit amount, duration, and consumer category, with no fewer than three examples. e) A dedicated credit card calculator must be developed to calculate the APR and all commissions/fees borne by consumers in advance or monthly. It also clarifies the appropriate credit limit type for the card based on consumer inputs. f) Financing limits, fees, and charges must comply with relevant systems, regulations, and other regulatory requirements. g) No prices, ratios, or rates that do not align with the disclosure tables and website calculator results shall be used in marketing campaigns. h) The calculation process and pricing factors must be clarified for transparency; for example, if variable interest/profit rates are used, they must be stated and explained. i) Disclosure of the minimum or maximum for products where prices cannot be fixed. For example, savings products where the rate is linked to the average balance in the customer's account. j) If a disclosure requirement in the disclosure forms does not apply to a product, it must be stated as "Not Applicable" with a logical justification provided. k) For multi-feature residential financing products: banks and financing companies must develop a residential financing calculator on their websites, considering the inputs specified in Section 5(c) of these Rules. For other printed materials, one example per type must be used. l) Written notice must state that disclosure, whether through disclosure tables or the calculator, is for illustrative purposes and that prices may vary for some customers depending on influencing factors such as the consumer's credit history.

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m) Where applicable, disclosure tables and the dedicated calculator for financing and savings products (if any) must be consolidated on a single page on the bank or financing company's website under an icon labeled "Financing and Savings Products Rates", with direct access enabled by placing the icon in the top right of the website homepage to facilitate consumer price access. Additionally, disclosure tables and the calculator must be added to each product's dedicated page. n) Prices must be reviewed periodically and at least monthly, with any price adjustments reflected in the disclosure tables and calculator within one working day, and the last update date stated at the top of the page.

5. Disclosure Table Examples for Individuals
   Banks and financing companies must use the examples below to illustrate the minimum information that disclosure forms must contain. Additional information may be included alongside the minimum requirements stated in this section.

a) Financing Products of Various Types
(Disclosure of balance sheet products such as financing, without the need to disclose off-balance sheet products)

Example: Term Financing

Financing Amount	Maturity in Years	*APR	Monthly Installment Amount
100,000	5 Years	5.5%	1,901

*The table above is for illustrative purposes, and the APR may vary depending on the amount, maturity period, and credit rating of each customer.

b) All Types and Categories of Credit Cards
Example: Platinum Balance Transfer Card

APR*	Credit Card Purchase Rate	Minimum Repayment Ratio	Months to Clear Balance
19%	17%	5%	60 Months

*Banks and financing companies must clearly disclose in contracts all components of the APR and commissions, and separate between fees/charges borne by consumers in advance and those borne monthly on the outstanding balance. If the minimum repayment is paid monthly, it will take approximately 60 months to fully clear the balance, considering compounded interest/profits added each month.

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c) Residential Financing
Example: First Home Purchase*

Market Value of Property	LTV Ratio	Fixed/Variable Interest/Profit Rate	APR	Maturity in Years	Repayment Type	Monthly Installment Amount	Early Settlement Fees
500,000	90%	Fixed Interest/Profit Rate	4.5%	25 Years	Financing Principal and Interest/Profit	19,378	Profit of three future installments

*Banks and financing companies must disclose in the residential financing calculator the repayment period for off-balance sheet products (Sale and Leaseback/Build-to-Suit).
Including the initial interest/profit rate (fixed interest/profit rate at the beginning of residential financing for a few years) and the follow-up rate (the interest/profit rate used after the initial period expires, e.g., using a fixed rate for several years then switching to a variable rate such as Saudi Interbank Offered Rate (SIBOR) for three months + 20 basis points.

d) Finance Lease Products for Each Asset Type
Example: Vehicle Financing

Asset Type	Financing Amount	Maturity in Years	APR	Monthly Installment Amount	Residual Value
Car	200,000	5 Years	5%	4,051	20,000

e) Savings for Each Category and Product Type
Example: Fixed-Term Deposit (Two Years)

Minimum Deposit Amount	Maturity in Years	AER	Number of Allowed Withdrawals in Year 1	Number of Allowed Withdrawals in Year 2
20,000	Two Years	1.5%	-	2

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6. Disclosure Table Examples for Small/Micro Enterprises
   a) Financing Products
   (Disclosure of balance sheet products for small/micro enterprises such as financing, without the need to disclose off-balance sheet products)

Example: Financing Types for Small Enterprises

Product	*APR	Administrative Fees	Minimum/Maximum for Administrative Fees
Short-Term Financing	4% to 6%	2% to 3%	1,000 SAR
Medium-Term Financing	3% to 5%	1% to 2%	1,000 SAR

*The table above is for illustrative purposes, and the APR may vary depending on the amount, maturity period, and credit rating of each customer.

b) Savings Products
Example: Fixed-Term Deposit (Two Years)

Minimum Deposit Amount	Maturity in Years	AER	Number of Allowed Withdrawals in Year 1	Number of Allowed Withdrawals in Year 2
20,000	Two Years	1.5%	-	2

7. Effective Date
   These Rules shall take effect within fifteen (15) working days from the date of issuance.

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