August 24, 2010
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News: Saudis Soon To See Lower CC Interest Rates
If you think Americans have a difficult situation as the average credit card interest rate hovers around 14 percent, consider Saudi residents where the average interest rate is 26 percent. Because individuals in the six Persian Gulf countries have lower credit ratings and are higher credit risks, they continue to deal with these high interest rate accounts. Central bank authorities in the six Persian Gulf Cooperation Council (PGCC) countries have requested that the local banks take steps to reduce credit card interest rates in an area that has seen more than a 100 percent increase in the issuance of credit cards.
There are no credit reporting bureaus in the Persian Gulf making it difficult for credit card companies to determine the creditworthiness of residents. Therefore, banks do not charge interest rates based on how high an individual's credit score is. As a result, many cardholders are paying a much higher interest rate than their credit history would warrant. According to a Burson-Marsteller survey, 18 to 24 year olds in Saudi Arabia are have difficulties managing credit card debt. Saudi residents have much to gain if the Kingdom would make an effort to create a reliable credit reporting bureau. However, they have taken no steps to establish such an organization.
In an attempt to bring credit card interest rates in line, the PGCC central banks are asking interest rates be reduced to prevent any decay of the economy. Saudi Arabians have over a SR8.1 billion in card debt and another SR195.1 billion in mortgage, auto and personal loans; a 3.5 percent increase from the previous year. Despite the high amount of debt, Saudi Arabians have managed to reduce card debt over the past year by SR434 million with only 22 percent of cardholders carrying balances forward. Saudi Arabia is the largest of the Persian Gulf countries.