The role of banks around the world is to finance projects and companies in exchange for collateral, or based on the reputation of the company or institution. There are rules in this regard, such that if the collateral is two or three times the loan, it indicates the ability of the borrower to pay, no matter how long it takes. The borrower’s transactions cannot be halted due to a temporary default.
Conversely, the market governs the nature of dealing with mortgagors. When government projects are halted for some reason and there is stagnation in economic activity, banks ease their conditions and understand the reality of the situation. If there is any default somewhere, the bank resorts to rescheduling payment dates to avoid losing its customers, giving the customer what is called a ‘payment restart date’.
This concept exists in all countries around the world, so we witness loans being extended over long periods. In fact, the financier, like the bank, finds loopholes to help the mortgagors continue paying according to their ability, because the primary goal is to generate capital, encourage lending, and stimulate the economy, especially if the mortgage is many times larger than the loan, and if the economy is weak.
Countries support loans because they realize that this opens opportunities for people to help reinvigorate commercial activity and push for development. However, it appears that some banks are strict in dealing with customers, disregarding the financial rules in place.
They attribute this strictness to the Central Bank, even though they are fully aware that the latter is working hard to facilitate financial activity, because stagnation increases inflation rates, something no central bank in the world desires. When public spending on development projects declines or stops due to risks in the region or certain countries, companies face a dilemma in balancing their requirements with their debt service to the bank.
Therefore, the bank eases restrictions, maintains financing for the company, and does not request collateral to avoid a non-financial crisis
Yet, when banks resort to the judiciary or legal means, they stall projects. This means losses for them and their clients, especially if the debt is small or the mortgage is much larger. What do some banks think if the State delays paying the companies’ dues? If, Allah forbid, the company falls into some kind of deficit, some banks resort to such measures despite knowing that the mortgaged assets are more than sufficient, because the deficit is temporary, for a specific reason, and perhaps, beyond the control of the institution, which has a long history of dealing with the bank and has been paying its obligations without delay. A single mortgage would have repaid the loan and more.
In such cases, it is well known that central banks around the world ease measures and monitor the unjustified tightening of some banks’ policies toward their clients, as they are fully aware that no one benefits from the suspension of financing. They do not impose stricter policies on banks to prevent companies from taking risks that do not serve the economic activity of the country, as this ultimately disrupts financial activity, which is the foundation of the country’s recovery. Some financial institutions manage their financing wisely, because they know that their existence depends on their clients -- companies and individuals. They are keen on diversifying their portfolios by increasing mortgages, and they know that legal procedures could be lengthy.
Thus, they help themselves by assisting borrowers and accepting their arguments, especially if there is development stagnation in the country, that is, in any country. With great wisdom, the Central Bank operates to protect financial and credit stability and provide liquidity to maintain economic activity.
We put the matter in front of the Central Bank. We are in a country keen on moving toward a significant development path, and we do not want to tamper with it. We are talking about those who are solvent, have comfortable jobs, and have strong mortgages, so why shouldn’t our relationship with them be good and interactive?