All the banks, except for Mizrahi Tefahot Bank (TASE:MZTF), last night notified the Ministry of Finance that they will join its guarantee program for the banks. Under this program, the ministry will guarantee up to NIS 6 billion in bond issues.
The capital raised through the bonds will serve as upper tier-2 capital, with the government guaranteeing 95% of the amount raised. The deadline for using the guarantees is September 30, 1995. Accountant General Shuki Oren is in charge of the plan.
Each bank can receive an allocation of guarantees equal to its relative proportion of risk assets. The allocations are as follows:
So far, Discount Bank is the only bank that has announced plans to raise capital with the government guarantees. Discount Bank has the lowest capital adequacy ratio among Israel's banks, and it needs to raise an estimated NIS 2.5 billion in capital to comply with the mandated minimum ratio of 12% by the end of 2009.
Mizrahi Tefahot Bank's refusal to participate in the scheme is because it raised capital in recent weeks. It is the only bank that will report a profit for the fourth quarter, and its profit for 2008 as a whole is predicted to reach NIS 600 million.
Using the government guarantees to raise capital means that the banks will save part of the cost of the offering. The bank making the offering will keep 30% of the saving, and the government will receive a guarantee fee amounting to 70% of the saving.
The government is not guaranteeing the full amount of debt raised for the entire ten-year period. The maximum guarantee for the first three years is 95% of the amount raised. The guarantee will fall to 65% of the amount raised for the next three years, and it will fall to 40% of the amount raised over the final four years.
Published by Globes [online], Israel business news - www.globes-online.com - on March 2, 2009
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