Saudi Arabia's central bank has published new consumer lending regulations which give it the power to cap retail lending at individual banks and limit the fees that banks can charge.

The rules could dent profit growth at banks, especially those that rely heavily on retail activity, as the kingdom prepares to open its stock market to direct foreign investment early next year.

Saudi banks' combined consumer loan book stood at 333.8 billion riyals ($89 billion) at the end of March, up 8.6 per cent year-on-year. That was 28.7 per cent of all their lending.

The regulations, published on the Saudi Arabian Monetary Agency's (Sama) website, state: "Sama may, at its discretion, impose a restriction on a creditor under which its consumer financing portfolio may not exceed a specified percentage of its total financing portfolio."

They also state that "all fees, costs and administrative services charges" collected by banks must not exceed either 1 per cent of the financing amount or 5,000 riyals, whichever is lower.

Previously, processing fees were fixed amounts, regardless of the size of the loan, and varied from 1,500 to 2,500 riyals per loan application, according to brokerage EFG Hermes.

"The imposition of caps on fees should substantially dent the retail loan income for banks, in our view, with the impact likely to be felt more by banks that have significant revenue contribution from retail banking business," it said on Monday.

"While the impact of lower retail banking fee income should be felt across all banks, we estimate that the Islamic banks - Al Rajhi, Aljazira - and NCB, the largest retail banking player amongst conventional banks, should see the biggest negative impact on their fee income growth prospects."

EFG Hermes said the central bank was likely to use the consumer lending cap after closely monitoring the risk management capabilities of individual banks.

The Saudi central bank has a reputation as a conservative and cautious regulator, and has not hesitated in the past to encourage local banks to increase bad loan provisions at times of rapid loan growth. - Reuters