"Loans should be repaid to the last shekel - small business, mid-sized business, big business," Supervisor of Banks David Zaken told the Knesset Finance Committee at today's meeting to discuss bank debt. "This is not an open question. Every way should be found to collect the debt, either through debt settlements or legal settlements. This is our position, and how we operate. The problem is not reaching a settlement, but the increase in the number of debt settlements and their effect on the economy."
Zaken said, "Total credit in the banking system is NIS 846 billion, of which NIS 415 billion is to businesses, NIS 360 billion to households, and NIS 240 billion is in mortgages. We see problems in the allocation of credit. There is over-concentration in loans to bid borrowers, which does not reflected in concentration in the economy. The Centralization Committee is not the only one dealing with this, the Banking Supervision Department is also active, through single borrower restrictions, which is yielding results. Credit is being diverted from the business sector to households."
The Finance Committee met in the wake of Bank Leumi's (TASE: LUMI) now cancelled intention to write off NIS 150 million in debt owed by Ganden Investments Ltd., through which Nochi Dankner controls IDB Holding Corp. Ltd. (TASE:IDBH). Bank CEOs did not attend the committee meeting, sending middle managers instead. Association of Banks in Israel executive director Moshe Pearl, and Israel Securities Authority chairman Shmuel Houser were present. The committee will discuss debt settlements with bondholders next week.
IDB chairman Nochi Dankner was summoned to the Finance Committee meeting, but did not appear, as he is in Argentina to discuss the follow-on investment in Ganden Investments Ltd., through which he controls IDB, with Eduardo Elsztain.
"Every debt settlement should be examined, but it is hard to argue with a feeling," said Hauser. "We're worried by the debt settlements. Since the crisis, we've handled 120 debt settlements by public companies. There must be equality between creditors, in accordance with the creditors' arrangements and collateral, and we verify that this is the case in the various debt settlements.
Zaken said that the Bank of Israel intervenes in debt settlements under two conditions. "We examine the procedures if there is concern of unreasonableness. We'll intervene and demand corrections. The other condition is in a specific deal, in advance, when we believe that it might undermine a bank's stability. We have sources of information both inside and outside the banking system, such as the media."
Published by Globes [online], Israel business news - www.globes-online.com - on April 23, 2013
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