Given the economic slowdown, Bank of Israel will expect banks to this year adopt a conservative policy toward dividend distribution.

While the central bank is not legally authorized to determine the dividends banks distribute, Supervisor of Banks Yitzhak Tal told Yedioth Ahronoth that given the economic situation, dividend distribution is expected to be based on economic development in coming years rather than on operating profit.

Banking sources estimate that should the banks want to distribute high dividends in 2002, the supervisor will advise them against it.

Several months ago Tal instructed the banks to in the second half of 2001 make a special provision of 0.3% of their portfolios. The provision is based on Tal's opinion that the banks are not sufficiently conservative.

Dividend distribution is especially significant to private banks, such as Bank Hapoalim and Mizrahi Bank, in order to allow shareholders to repay loans taken for the banks' acquisition.

In the course of the coming month the banks are due to publish financial reports for 2001, which are expected to indicate an increase in doubtful debt and decreased profitability due to the economic crisis.