There is growing concern in the banking sector over the prospect of a crisis in the economy and the extent of the debt owed by the business sector to institutional entities. "What we have here is a ticking bomb. Firms have raised tens of billions of shekels in bond issues over the last two years, and there isn't anyone to repay the principle. The capital market has dried up and can no longer hold up the bubble it created. There are likely to be a phenomenal number of defaults and firms will go under," a top executive in the banking sector told "Globes."
The source explained that this could be a crisis of the type that has never been seen in Israel before, since in contrast to previous crises, the principal exposure to business sector debt will not be that of the banking sector, but the general public through the institutional entities, such as provident and pension funds, insurance companies and mutual funds, which manage its savings.
The concern in the banking system is that there could be a simultaneous accumulation of four factors: the falling shekel-dollar rate which will reduce revenue in the manufacturing sector; increases in global commodity prices which will raise costs; the slowdown in the US economy, which will hit exports, and the drying out of the capital market which will reduce sources of funding. "This is a lethal combination. Any one of these factors can create pressure on the business sector on its own, and a combination of all four will deliver a knock out blow. Companies simply won't survive. We won't be facing a rainstorm but a deluge," says a senior banker.
Published by Globes [online], Israel business news - www.globes-online.com - on July 20, 2008
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