Saudi clears bond market amid credit squeeze

The Saudi stock market regulator has approved setting up a market for debt securities, it said yesterday, responding to a long-standing demand by some firms to diversify sources of financing amid tight credit conditions.

The Capital Market Authority's (CMA) decision is part of its "continuous and gradual effort to develop the Saudi capital market", it said in a statement posted on the bourse's website.

The Saudi stock exchange – Tadawul – has already developed the market, which will trade bonds and sukuk through licensed intermediaries, CMA said. The date of the market's launch will be announced later, it added.

CMA's head, Abdul-Rahman Al Tuwaijri, has already said the authority planned to launch a market for debt securities. Central bank governor Mohammad Al Jasser said in February that commercial banks and firms seeking financing should tap more the debt market with the issue of bonds.

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 exceeding at the end of last year 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 fallout of the global financial crisis has further slowed down credit growth as lenders became increasingly cautious.

Tadawul currently trades Islamic bond issues by only two listed firms – Saudi Basic Industries Corp and Saudi Electricity. The government is a major shareholder in both firms. Ernst & Young said last month Shariah-sensitive investable assets in 2008 in the GCC states and Asia almost tripled to $736 billion (Dh2.7 trillion) compared to $267bn in 2007. (With inputs from Reuters)

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