A senior banking industry official has proposed a change in the government's bank assistance program, and suggested guaranteeing a much larger amount of debt, but for a shorter time period.
In the framework of the current plan, the government will provide guarantees to help banks raise NIS 6 billion of debt for ten years. The goal is to help the banks increase credit in the economy. The official suggested that the government provide banks with guarantees for up to NIS 15 billion in debt, but for a period of only two years.
The new proposal allows banks both to increase their capital and to meet the capital adequacy ratio goals set by the Bank of Israel. The Bank of Israel wants to see banks with a capital adequacy ratio of 12% by the end of 2009.
At the same time, the proposal would help to alleviate an anticipated credit crunch. Disagreements between the Bank of Israel and the Ministry of Finance have held up publication of the government assistance plan for two weeks.
Bank Hapoalim (LSE: BKHD; TASE: POLI) CEO Zvi Ziv recently described the banking industry situation succinctly "The answer to whether the banking system can cope with the demand for credit in 2009 is no."
Published by Globes [online], Israel business news - www.globes-online.com - on January 19, 2009
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