Supervisor of Banks David Zaken published a draft directive to banks in Israel which sets a minimum core capital ratio of 9% for all banks in Israel, to be implemented by January 1, 2015, and a ratio of 10% for the two largest banks, Bank Hapoalim (TASE: POLI) and Bank Leumi (TASE: LUMI), to be implemented by January 1, 2017.
These requirements are more flexible than those that the Bank of Israel originally planned. However, "Globes" already revealed in January that the Bank of Israel intended to relax requirements. The Bank of Israel has also been somewhat flexible over deadlines for the banks, approving a delay in the implementation of raising capital adequacy until 2016, and until 2017 for the large banks.
The Bank of Israel's flexibility has dispelled concerns of a credit crunch and has given the TASE a second wind: Share indices on the TASE jumped 2.5% after the Bank of Israel published its requirements, led by banks' shares.
Governor of the Bank of Israel Prof. Stanley Fischer said, "This is another vital step in strengthening the banking system and in supporting financial stability in Israel. This is a planned measure that will allow for continued credit and market growth."
Since "Globes" first revealed the Bank of Israel's requirements for increasing capital adequacy, banks have begun preparations. Contractors have recently complained of a serious credit crunch, although the Bank of Israel has rejected their claims. The Central Bureau of Statistics recently published data that show that building starts fell 13% in the fourth quarter of 2011, and contractors claim that the reason for this is a credit crunch.
This is the first time that the Bank of Israel is differentiating between the large banks Hapoalim and Leumi and the rest of the banks in Israel, which reduces the value of investing in those banks. Core capital adequacy reached 7.81% at the end of the third quarter of 2011.
Published by Globes [online], Israel business news - www.globes-online.com - on March 14, 2012
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