On 22 June, after almost a year of work, Saudi Aramco and France’s Total finally closed the massive $8.5bn debt financing for their Jubail refinery project. Just a week earlier, France’s GDF Suez raised $2.1bn for a power project in Riyadh.

The two deals marked the end of a dry spell for the regional project finance market. With the Jubail refinery in particular, Aramco and Total have completed one of the largest ever project financing deals in the region.

That is a staggering achievement, given that the banking sector is still largely risk averse as a result of the global financial crisis.

The two deals are the first of many currently being worked on by bankers in Saudi Arabia that could take the total project financing raised in 2010 to more than $26bn by the end of the year.

Partly, this was achievable because local banks are awash with cash and struggling to find a home for it, while also desperate to book new assets to boost their profitability. The question facing the banks and local project sponsors will be how far they are prepared to go.

Competition between lenders has significantly depressed interest costs for debtors, and this in turn has the potential to weigh on asset quality. Some bankers already complain pressure to lend is weighing on investment plans.

It will be difficult to avoid further falls in cost, given the size of the funding requirements for the diversification of Saudi Arabia’s economy.

So far, most banks have been able to address structural issues with the loans they are making, but as pricing on loans drop lower, the rationale for lending is eroded.

There are a huge number of deals to be completed in Saudi Arabia in 2010-11. Banks and sponsors are edging closer to a face off-that could see some projects struggle to get the funding they need.