Israel's banks will be preoccupied with the collapse of the Peled-Givony group for a long time to come. The repercussions of the scandal will go far beyond mere writeoffs for at least one bank that extended it credit - Israel Continental Bank.

Continental, which is controlled by Bank Hapoalim, lent the Peled-Givony group companies and its financial adviser, Tal Jaegerman, some NIS 190 million in total. That sum comprises 75% of its capital.

Bank of Israel regulators prohibit a bank from lending a single group of borrowers more than 30% of its capital. But Continental claims it adhered to the letter of the law: the Peled-Givony companies, it says, belonged to two business groups, not one.

The sheer number of companies and personalities involved in Peled-Givony group may have complicated the hierarchical analysis. But the bank knew that Jaegerman represented all the companies in their credit requests, hence, in practice, only one group of borrowers was in action.

That information was available to Continental's chief executive, Pini Horev, and to its credit VP, Amnon Lanir, when the credit was approved.

According to an auditors' report on Hapoalim in late 2001, Continental's management did not report to the bank's credit committee on the link between the Peled-Givony group companies. It presented each credit deal separately for the committee's appraisal.

That fact does not clear the committee members and the board of directors, led by chairman Amiram Sivan, of responsibility. The board's task is not to serve as a rubber stamp for the management's recommendations. It is to demand full information on loans, risks and the key people at borrowing companies.

At the time, Sivan was serving as manager of Hapoalim's management board, and it was incumbent upon him not to grant credit for the financial acrobatics of the Peled-Givony group.

Dan Halperin, the chairman of Peled-Givony company Hayl Holdings and a personal friend of Sivan, served on Continental's board while Sivan served as chairman. Halperin probably could have told the board about the relations between the group companies, and if he neglected to do so, he was not doing his job as director. If he did, and the credit was granted anyway, the whole board was not doing its job.

The Bank of Israel's Supervisor of Banks is still looking into the Peled-Givony affair, but two interim conclusions can be reached.

First of all, the Bank of Israel limitation regarding loans to single groups of borrowers is comparable to a filter with holes so big that the Peled-Givony group slipped through. The regulations may need revisiting.

Secondly, the managers of big banks customarily serve as chairmen at smaller subsidiary banks. Sivan, chairman of giant Hapoalim's management board, chaired the board of directors of wee Continental. Bank Leumi, Israel's second-biggest bank, is led by Galia Maor, who also chairs Bank Leumi Switzerland which has become embroiled in two major scandals.

However diligent these personalities may be, they cannot devote sufficient attention to the smaller institutions, which is a recipe for trouble. Each bank should be required to have a full-time chairman.

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