Saudi Arabia said it would launch its new market for Islamic bonds, or sukuk, and bonds on Saturday, offering firms new sources of funding amid tight credit conditions. Trading of bonds would run from 0830 GMT until 1200 GMT, the regulator said on the Gulf Arab state bourse's website.
"I believe this is a very important step forward since it will deepen the Saudi financial market," said Talaat Hafez, a member of the Saudi Economic Association. Central bank governor Muhammad al-Jasser said in February commercial banks and firms seeking financing should tap more into the debt market with bond issues.
"The bonds and sukuk will create liquidity for financing needs, especially for what is known as the mega projects," said Hafez. Saudi Arabia is currently undergoing huge development projects that will need $400 billion over the next five years but some foreign companies have pulled out of projects struggling to secure funding.
A surge in lending over the past five years that was fuelled by record oil prices has brought several Saudi banks to limits on their credit capacity with loan-to-deposit ratio at the end of last year exceeding the limit imposed by the central bank. Bank loans in 2008 equalled their total during the previous two years, Jasser said in February. Concern over a fallout of the global financial crisis has further slowed down credit growth as lenders became increasingly cautious.