Banks in Saudi Arabia are in an unusual position. They are flush with cash, but only in riyals. Dollar liquidity is harder to come by, particularly considering the huge development schemes planned by the government to help develop the infrastructure sector and diversify the economy.

Over the past two years, banks and project sponsors have come to a compromise. Borrowers will borrow in riyals rather than dollars, and then swap those loans into the greenback on the currency markets. But there are signs banks are beginning to look to get a competitive advantage by raising dollar funding.

Already Banque Saudi Fransi has raised a $650m bond to help it lend more in dollars. National Commercial Bank, the country’s largest lender, is also evaluating how much it needs to raise to support its project finance activities. Other banks in the kingdom look set to follow.

Although Banque Saudi Fransi has set the trend, which will be a useful model for future issuers, what the Saudi market really needs is a programme of government debt issuance to set a sovereign benchmark.

This will then serve as the basis from which to price private sector bond issues. Abu Dhabi and Qatar have already begun this process, opening the door for the corporate sector to tap the bond markets and diversify their funding base.

Riyadh shows no sign of following suit so far. Instead it is concentrating on paying off debt. That is a laudable aim, but it risks hampering the ability of its private sector to access bond markets. For the banking sector, this is the main avenue for raising long-term dollar denominated funding.

Given the huge development plans the kingdom has, coupled with the ambition to develop the private sector, it will be essential to develop every funding avenue possible if projects are to proceed without delays, or further government intervention.