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Saudi banks seen ready to tap bond market

|By Arabian Post Staff|Saudi Arabia’s banks are seen more likely now than ever before to tap the international bond markets.

According to data compiled by Bloomberg, Saudi banks have less foreign currency debt outstanding compared to any other GCC country. Of the 57 securities outstanding from issuers in the kingdom, only one is a dollar bond from a bank, compared with more than 400 foreign-currency notes from lenders in the United Arab Emirates and almost 100 from those in Qatar.

Saudi Arabia is reportedly considering a Eurobond sale as early as September, which observers believe will open up a relatively untapped market to foreign investors. Yields on bonds by the the kingdom’s banks will probably exceed those of many GCC peers given that Saudi Arabia’s rating is below that of Qatar and Abu Dhabi, according to Commerzbank AG.

Moody’s Investors Service downgraded Saudi debt to A1 in May, the fifth highest investment grade and two levels below that of both Abu Dhabi and Qatar, saying the slump in oil prices may lead to a “material deterioration” in the nation’s credit profile.

Saudi financial institutions are facing a cash squeeze as the government withdraws deposits and sells local-currency debt to fund a budget deficit after a halving in oil prices in two years cut revenue. Banks’ loan-to-deposit ratio, a key measure of liquidity, climbed to 90.2 percent in June, its highest since November 2008, forcing the government to lend them 15 billion riyals ($4 billion) in short-term funds to ease the crunch. The three-month Saudi Interbank Offered Rate has almost tripled in the past year to 2.25 percent.