DUBAI, July 23 (Reuters) - Saudi Arabia's ministry of finance said on Sunday it had established a programme to issue local currency Islamic bonds, as the government covers a large budget deficit caused by low oil prices.

The ministry described the programme as "unlimited" and said it would announce on a case-by-case basis details such as the types of eligible investors, the size of the issues and the expected profit rate.

The programme has been submitted to the Capital Market Authority, the ministry added without specifying when the first sukuk issue would take place.

Saudi commercial bankers told Reuters they expected the first issue as soon as in the next few days and believed 10 billion riyals ($2.7 billion) would be offered, which the market could cope with easily since liquidity had improved since last year and investors had been preparing for the issue.

The Saudi government started issuing conventional bonds in the domestic market in 2015 but suspended the sales late last year because of tightening liquidity in the banking system.

The ministry said last week that 13 domestic banks had qualified to participate in the sukuk issues. urn:newsml:reuters.com:*:nL5N1K944O

Finance minister Mohammed al-Jadaan told Al Arabiya television earlier this month that local currency sukuk issuance would begin in July. The government issued its first international sukuk, raising $9 billion, in April.

(Reporting by Davide Barbuscia and Tom Arnold; Editing by Andrew Torchia) ((Davide.Barbuscia@thomsonreuters.com;))

Keywords: SAUDI ARABIA SUKUK/