Leumi execs frustrate Knesset committee

At the end of a second hearing with senior banking executives, it can be cautiously stated that the members of the Knesset Economic Affairs Committee will find it difficult to draw far-reaching conclusions from the executives' answers. Today, it was the turn of Bank Leumi (TASE: LUMI) chairperson David Brodet and CEO Rakefet Russak-Aminoach to answer the questions from the committee, headed by MK Eitan Cabel (Zionist Union). As in last week's hearing with Bank Hapoalim's (TASE: POLI) executives, it resembled a dialogue of the deaf: the MKs asked questions and the executives explained that they could not answer because of banking confidentiality, or explained that procedures at the bank had changed, and that almost no loans were now being granted to large borrowers.

It was evident that the MKs came better prepared to the hearing after last week's hearing with Bank Hapoalim. They were more assertive and persistent with Brodet and Russak-Aminoach, who appeared quite tense and wary. At one stage, Russak-Aminoach even apologized for leaving the hearing for a few minutes in the middle without asking permission, after Cabel complained about it. Neither the penetrating questions nor the tense atmosphere, however, were of any use to the MKs; Brodet and Russak-Aminoach were well prepared for the hearing and did not stray from their script.

Bank Leumi can take comfort in the fact that despite the many confrontations during the hearing, it ended without Cabel asking them to attend another hearing, in contrast to the heads of Bank Hapoalim, who at the end of their hearing were summoned to another.

It appears that the MKs realized that the bankers would continue hiding behind confidentiality and would not answer questions about specific borrowers. They therefore decided to expand the topics in the hearing. For example, Brodet was asked about the revolving door in banking - executives moving from the public to the private sector, especially to the banking system. Another issue brought up for discussion was the investigation by the US authorities into abetting of tax evasion by Bank Leumi, for which the bank paid a huge $400 million fine.

Kisch threatens state investigation

The committee members were aware of the difficulty of getting information out of bankers. Cabel addressed this issue at the beginning of his remarks, saying that as he saw it, one of the main conclusions from the committee sessions was that a subcommittee of the Knesset Economic Affairs Committee should be formed, similar to the subcommittee of the Knesset Foreign Affairs and Defense Committee, to which classified material can be disclosed.

"One of the Fishman Committee's conclusions was the establishment of a subcommittee of the Economic Affairs Committee, to be called the Financial Regulation Subcommittee, which will have the same authority as the subcommittee of the Foreign and Defense Affairs Committee for hearing classified information. The Knesset is the body elected by the public in order to represent it against the interests of people who think they have everything and no one can make them do anything. It is about time that the banks gave the public an accounting," Cabel said.

MK Yoav Kisch (Likud), who was responsible for running the hearing, added that if the committee continued not to receive the answers and information it needed, there would be no alternative to establishing a state investigative commission. The banks are is not opposed to this, mainly because such a committee holds its hearing behind closed doors.

At the beginning of hearing, Brodet presented Bank Leumi's position on credit, saying, "We will bring factual information, some of which contravenes prevailing views. We did not hesitate to provide credit in 2008-2009 during the great crisis. Bank Leumi is an organization that investigates and draws conclusions. When I came to the bank, I found it in the midst of a credit revolution that began in 2006. Why was this revolution necessary? The way large business loans were granted was far less efficient than the situation today, and the way credit was granted to large businesses therefore required renewed consideration. That is what we did in 2006 and afterwards. Implementing this credit revolution was no simple matter."

Brodet added, "Had we not taken these steps, we would be sitting here with more than four problem groups of borrowers. We regard repayment of debt as a moral value. Debt must be repaid; that is the basis of banking… We collected billions; we did not write off billions."

Russak-Aminoach, who before becoming CEO headed Bank Leumi's corporate division, constantly tried to give the impression that Bank Leumi's business credit policy was the best possible. Among other things, she said, "We do not give any amount of credit if we are not convinced that we will get the money back. We have no other ideology. That is why our credit portfolio is so good, even in comparison with the other banks, and also from an international perspective."

Russak-Aminoach dismissed assertions that Bank Leumi granted credit because of the halo effect that some borrowers had, even though the Bank of Israel has said that this underlay the credit given some borrowers.

Published by Globes, Israel business news - en.globes.co.il - on October 28, 2018