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 by its system issued by Royal Decree No. M/36 dated 11/4/1442 AH, the Banking Control System issued by Royal Decree No. (M/5) dated 22/2/1386 AH, and the Financing Companies Control System issued by Royal Decree No. (M/51) dated 13/8/1433 AH, and with the Central Bank's keenness to protect the rights of participants in the financing sector, and striving to unify the procedures for dealing with promissory notes by financial institutions, we hereby attach the instructions issued in this regard.

To respond to, and act in accordance with, as of 1/7/2022 CE.

And accept my regards,

Fahd bin Ibrahim Al-Shathri
Deputy Governor for Supervision

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Distribution Scope:

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

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Instructions for Creditors on Dealing with Promissory Notes

(Ramadan 1443 AH / April 2022 CE)

Important Note:

To keep pace with updates and amendments regarding instructions issued by the Saudi Central Bank, the 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

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

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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 indicated opposite each of them, unless the context requires otherwise:

• Central Bank: The Saudi Central Bank.
• Instructions: Instructions for dealing with promissory notes.
• Financial Institution: Banks, Mudarib, and financing companies subject to the supervision and control of the Central Bank.
• Client: A natural or legal person who obtains a financing product from a financial institution.
• Default: The client's failure to pay the agreed monthly installments in the financing contract for three consecutive months, or more than five months scattered throughout the financing period, or as stipulated in the financing contract for non-monthly installments.
• Third Party: An entity contracted to act on behalf of the financial institution to provide a service that was previously performed by the financial institution or a new service it intends to start implementing. It can be a unit of the financial institution itself, a subsidiary of the financial institution, or an independent entity.
• Qualified Communication: A verifiable and retrievable means of communication 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 collecting from individual clients issued under Central Bank Circular No. (3910000083440) dated 26/7/1439 AH.

• The standard form of the individual vehicle finance lease contract issued under Central Bank Circular No. (41038534) dated 1/6/1441 AH.

• The standard form of the individual real estate finance contract using the Murabaha format and the individual real estate finance contract using the Ijarah format issued under Central Bank Circular No. (41038504) dated 1/6/1441 AH.

• Rules for outsourcing tasks by financing companies issued under Central Bank Circular No. (65338/99) dated 7/5/1440 AH.

• The first update of the instructions for outsourcing tasks to a third party issued under Central Bank Circular No. (41027017) dated 18/4/1441 AH.

• Controls for clients signing blank promissory notes (without data) in exchange for obtaining banking facilities issued under Central Bank Circular No. (743/2710000000) dated 19/2/1427 AH.

• Central Bank Circular No. (4104391) dated 25/07/1441 AH regarding the "Nafath" electronic platform approved by the Ministry of Justice.

• Central Bank Circular No. (41045412) dated 01/07/1441 AH 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 any communication stipulated in related Central Bank Instructions.
• b- Naming the authorized person empowered to approve the start 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 of outsourcing enforcement on the promissory note to a third party, the financial institution must comply with what is stated in related Central Bank Instructions.
• d- Identifying the department responsible for following up with the third party regarding 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 relationship documents and account statements when submitting an enforcement request to the competent court.

3.3 Procedures to be followed in case 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 directly communicate with the client through a qualified means of 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. 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 cooperate 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 cooperation. The financial institution must commit to returning the promissory note to the client upon their request.

• e- In the event of renewing the relationship with the client or modifying the loan or facility actually with the financial institution, the financial institution must return the promissory note or promissory notes under the new 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 started until the requirements specified in the policy referred to in Item (3) of these Instructions are met.

5. The financial institution shall bear any damages resulting to the client from enforcing a promissory note that the client has already paid.

6. The financial institution must comply with the standard form of the promissory note prepared by the Ministry of Commerce and Industry under Central Bank Circular No. (6876/M 213) dated 9/07/1410 AH.

7. When issuing an electronic promissory note, the financial institution must comply with approved electronic platforms.

8. The 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 an action 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 Central Bank upon completion.

10. The Central Bank has the right to amend and update these Instructions if necessary.