Supervisor of Banks Rony Hizkiyahu has attempted to calm the markets by insisting that the latest losses incurred by Africa-Israel Investments Ltd. (TASE:AFIL; Pink Sheets:AFIVY) will not rock Israel's banking system.
He said, "Israel's banking system is stable, with high capital adequacy ratios, and there is no concern about the stability of the banking system or any specific bank as a result of the current events. As part of the preparation for the financial crisis in Israel and the world, we examined the influence of such a scenario as this on the economy in general and the banking system in particular and we found that the economy can cope with an event like this."
The main fear in Israel since the start of the crisis has been the collapse of one of the country's biggest tycoons such as Africa-Israel controlling shareholder Lev Leviev. Hizkiyahu added, "The banking system is prepared for a situation where a large borrower is mired in difficulties. This preparedness includes classifications and provisions in proportion to the credit given to specific borrowers as set out in the banks' financial reports."
Despite Hizkiyahu's soothing words, Israel's major banks are expected to take a hit from Africa-Israel's latest difficulties. Following today's dramatic second quarter results, a capital market source told "Globes" that, "Lev Leviev has debts to all Israel's banks and they will wipe off hundreds of millions of shekels in the near future. A rise in the provision for doubtful debts is expected in the next quarter."
Israel's two largest banks Bank Hapoalim (LSE: 80OA; TASE: POLI) and Bank Leumi (TASE:LUMI) are expected to be the worst hurt by Leviev's woes. The estimate is that Leviev owes Hapoalim more than NIS 1.5 billion through his privately held Memorand Ltd. and an additional NIS 500 million to Leumi through companies he controls.
Africa-Israel is not giving away any details about creditors arrangements. In the coming few days Africa-Israel will contact bondholders with its offer of arrangements, and market sources say anything is possible, from converting part of the debt to shares (this would result in a dilution of existing shareholders and hurt them) to rescheduling the debt in return for higher interest.
In any event Hizkiyahu said, "The Supervisor of Banks is in ongoing contact with the banks and continues to closely follow development on the subject."
Published by Globes [online], Israel business news - www.globes-online.com - on August 30, 2009
© Copyright of Globes Publisher Itonut (1983) Ltd. 2009