Industrial Development Bank of Israel's losses for the second quarter 2002 could be as high as NIS 100 million, the bank estimated yesterday.

Losses of NIS 100 million would constitute 10% of the bank's equity, which is around NIS 1 billion.

If its estimate is accurate, the bank will have lost NIS 150 million in the first half of 2002, wiping out every cent it made from 1997 to 2000.

Industrial Bank's shares fell 7% on the Tel Aviv Stock Exchange after its earnings warning.

The bank attributed the losses to climbing provisions for doubtful debt. It had lent heavily to industrial, electricity and water companies, and was among the banks that helped finance Gad Zeevi's purchase of a 20% stake in Bezeq for hundreds of millions of dollars.

The company bank reportedly also lent money to companies in the imploding Peled-Givony group, including a NIS 15 million loan to Feuchtwanger Industries.

Although it is low-profile, Industrial Bank is the seventh largest bank in Israel. Sources at the bank said yesterday that it is not in any danger of collapse: it has relatively high equity of around NIS 1 billion, it is state-owned (the state has a 64% stake in the bank), and the state has deposits of around NIS 7.9 billion in the bank. The public holds around NIS 4 billion in deposits in the bank.

As well as the state, Israel's three largest banks - Bank Hapoalim, Bank Leumi and Israel Discount Bank - all have a share in Industrial Bank and representatives on its board of directors.

Industrial Bank faces a severe problem with its capital adequacy ratio, the ratio between the amount of loans it has extended and its equity. According to Bank of Israel instructions, Industrial Bank is required to have a capital adequacy ratio of 15%, while the figure for the other banks stands at 9%.

As a result of its recent losses, the bank had already reported a capital adequacy ratio of 13.8%.

Industrial Bank received an extension from the Bank of Israel until December 2002 to push its capital adequacy ratio back up to 15%. However, now with its second quarter losses, it is clear that its capital adequacy ratio will drop even further, and the supervisor of banks may ask its shareholders to put equity into the bank in order to bring it back up to its required capital adequacy ratio.

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