The Ministry of Finance will publish its bank assistance plan later this week. The government will provide guarantees for the banks to raise up to NIS 6 billion in bonds. Accountant General Shuki Oren and his deputy, Ami Landau, prepared the plan.
After the plan is published, the banks will have 45 days to respond and accept the government guarantees. The banks will then have nine months to issue the bonds.
So far, only Israel Discount Bank (TASE: DSCT) has announced that it intends to participate in the program because its capital adequacy ratio of 10.59% is below the Bank of Israel mandated 12% minimum. To meet the mandated capital adequacy ratio, Discount Bank will have to raise NIS 1.9 billion, an amount that is impossible without a huge raising of tier-2 capital on the capital market.
Assuming that the banks meet only the target of 50% of the credit growth under the Ministry of Finance formula, the government guarantees will lower the cost of raising the capital by NIS 750 million over the bonds maturity period.
The ministry believes that the main reason other banks have not yet announced their participation in the program is fear of being stigmatized as banks that need government aid.
Published by Globes [online], Israel business news - www.globes-online.com - on January 4, 2009
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