Circular Re. The Instructions for Creditors on Dealing with Promissory Notes

Saudi Central Bank

Ref: 43076917
Date: 1443/09/04
Attachments: 5 pages

Circular

Dear Sirs,

Peace, mercy, and blessings of God be upon you,

Subject: Instructions for Creditors on Dealing with Promissory Notes.

Based on the powers delegated to the Saudi Central Bank under its system issued by Royal Decree No. M/36 dated 11/4/1442H, the Banking Control System issued by Royal Decree No. (M/5) dated 22/2/1386H, and the Financing Companies Control System issued by Royal Decree No. (M/51) dated 13/8/1433H.

And with the Saudi Central Bank's keenness to protect the rights of users in the financial sector, and its pursuit to unify the procedures for dealing with promissory notes by financial institutions, we hereby attach the instructions issued in this regard.

For your information and implementation effective from 01/07/2022.

And please accept my regards,

Fahd bin Ibrahim Al-Shathri
Deputy Governor for Supervision

Distribution List:

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

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Instructions for Creditors on Dealing with Promissory Notes

(Ramadan 1443H / April 2022)

Important Note:
To keep pace with updates and amendments regarding instructions issued by the Saudi Central Bank, the Saudi Central Bank emphasizes the necessity of always relying on the versions published on its website: www.sama.gov.sa.

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Table of Contents

Chapter	Page Number
Chapter One: Definitions and General Provisions	3
Chapter Two: Instructions for Creditors on Dealing with Promissory Notes	4
Chapter Three: Final Provisions	5

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Chapter One
Definitions and General Provisions

1. Definitions:
The following words and expressions, wherever they appear in these Instructions, have the meanings set out opposite each of them, unless the context requires otherwise:
The Central Bank: The Saudi Central Bank.
The Instructions: Instructions for dealing with promissory notes.
The Financial Institution: Banks, banks, and financing companies subject to the supervision and control of the Saudi Central Bank.
The Client: A natural or legal person who has obtained a financial product from a financial institution.
Default: The client's failure to pay the agreed monthly installments under the financing contract for three consecutive months, or more than five separate months throughout the financing period, or as stipulated in the financing contract for non-monthly installments. Third Party: An entity contracted by the financial institution to act on its behalf to provide a service that was previously performed by the financial institution or a new service it intends to start implementing, which may be a unit of the financial institution itself, a subsidiary of the financial institution, or an independent entity. Documented Communication: A registered communication method that can be verified and retrieved in written or electronic form.

2. General Provisions:
2.1. These Instructions aim to set the minimum provisions that financial institutions must comply with when dealing with promissory notes.
2.2. These Instructions do not prejudice the provisions contained in related instructions, including, but not limited to:

• Controls and procedures for the collection of individual clients issued under Central Bank Circular No. (391000083340) dated 26/07/1439H.
• The standard form of the financial leasing contract for vehicles for individuals issued under Central Bank Circular No. (41038534) dated 01/06/1441H.
• The standard form of the Murabaha financing contract for individuals and the financing contract in the form of Ijarah for individuals issued under Central Bank Circular No. (41038504) dated 01/06/1441H.
• Rules for assigning tasks to financing companies issued under Central Bank Circular No. (65338/99) dated 07/05/1440H.
• The first update to the instructions for assigning tasks to a third party issued under Central Bank Circular No. (41027017) dated 18/04/1441H.

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• Controls on clients signing blank promissory notes in exchange for obtaining banking facilities issued under Central Bank Circular No. (271000000743) dated 19/12/1427H.
• Central Bank Circular No. (41044391) dated 25/06/1441H regarding the "Nafath" electronic platform approved by the Ministry of Justice.
• Central Bank Circular No. (41045412) dated 01/07/1441H regarding the "Nafath" electronic platform approved by the Ministry of Justice.

Chapter Two
Instructions for Creditors on Dealing with Promissory Notes

3. The financial institution must put in place a policy approved by the Board of Directors for dealing with promissory notes, which must include, at a minimum, the following:
3.1. Procedures to be followed before starting enforcement procedures on the promissory note:
a- Identifying the department responsible for communicating with the defaulting client, without prejudice to the communication mechanism stipulated in the related Central Bank instructions. b- Naming the person authorized to approve the commencement of enforcement procedures on the promissory note before the competent court.

3.2. Procedures to be followed when proceeding to start enforcement procedures on the promissory note:
a- Identifying the documents required for enforcement on the promissory note, which must include, at a minimum, (the financing contract under which the promissory note was obtained, the due promissory note, proof of the client's default, proof of communication with the defaulting client). b- Identifying the department responsible for carrying out enforcement procedures on the promissory note before the competent court. c- In the event that enforcement procedures on the promissory note are assigned to a third party, the financial institution must comply with what is stated in the related Central Bank instructions. d- Identifying the department responsible for following up with the third party regarding the enforcement on the promissory note and ensuring its compliance with relevant systems, regulations, and instructions. e- Restricting the claim under the promissory note to the amount due from the defaulting client according to the relationship documents and account statements when submitting a request for enforcement on the promissory note before the competent court.

3.3. Procedures to be followed in the event that the purpose of the promissory note has ended:
a- The authorized person must immediately endorse the promissory note stating that its value has been paid for the purpose of returning it to the client. b- The responsible department must communicate directly with the client through documented communication to return the promissory note.

--- c- The promissory note is returned to the client in their presence at the financial institution's premises, or by sending it to the client's national address upon their request, and the cost of sending may be charged to the client if they request the promissory note to be sent, provided that the client's request is documented. d- In the event that the client does not respond or cannot be reached to receive the expired promissory note, the financial institution must endorse the promissory note stating that the client has paid its value and keep it in their file, attaching proof of communication with the client without their response, provided that the financial institution commits to returning the promissory note to the client upon request. e- In the event of renewing the relationship with the client or modifying the loan or facility, the financial institution must return the promissory note or promissory notes for the renewed or modified contract to the client and obtain a new promissory note or promissory notes in light of the new relationship.

Chapter Three
Final Provisions

4. Enforcement procedures on the promissory note before the competent court shall not be initiated unless the requirements specified in the policy referred to in Item (3) of these Instructions are met.
5. The financial institution bears any damages resulting to the client from enforcing a promissory note that the client has already paid in full.
6. The financial institution must comply with the standard form of the promissory note prepared by the Ministry of Commerce and issued under Central Bank Circular No. (213/M/A) dated 09/06/1410H.
7. When issuing an electronic promissory note, the financial institution must comply with approved electronic platforms.
8. The Saudi Central Bank has the right to take any measures stipulated in the Banking Control System, the Financing Companies Control System, and its executive regulations against any financial institution that fails to comply with any of these Instructions.
9. The financial institution must put in place a work plan to communicate with clients to return expired promissory notes, which must be implemented within one year from the date of publication of these Instructions, and to provide the Saudi Central Bank upon completion.
10. The Saudi Central Bank may amend and update these Instructions if necessary.