The Bank of Israel plans to appoint an administrator for the Industrial Development Bank unless the state infuses more capital to the bank. Central bank governor David Klein will be advising Prime Minister Ariel Sharon accordingly today.

The fate of Industrial Development Bank will be discussed in a special urgent meeting called for today between Prime Minister Ariel Sharon, Finance Minister Silvan Shalom, Trade Minister Dalia Itzik, governor Klein and the bank's new board chairman, Ra'anan Cohen, who took office only this weekend.

An administrator officially usurps managerial authority from the bank's managers and shareholders. Nor would the bank be able to accept new deposits or extend new loans, thus the move is tantamount to shutting it down.

Such steps are taken only when a bank's ability to meet its commitments becomes questionable. If an administrator is appointed for Industrial Development Bank, it will be the second such appointment this year after the appointment of an interim manager for Trade Bank in April. In the early 1990s an administrator was appointed for Agriculture Bank after it got in trouble with problem credit.

The administrator handles existing clients as ruled by the central bank's Supervisor of Banks. The ultimate goal is to liquidate the bank.

The decision follows Industrial Development Bank's announcement that it expects a loss of NIS 100 million for the second quarter of 2002, and will fall below the minimal capital adequacy required by the central bank. The bank says it would need a NIS 200 million injection from the treasury to meet the requirement, but the treasury spurned the request and has no plans to dig the bank out of its own capital inadequacy hole.

The bank's chief problem is tremendous provisions for doubtful debt on loans to the Peled-Givony group, businessman Gad Zeevi, and others.

The central bank fears Industrial Development Bank, which is half-owned by the State of Israel, will continue to deteriorate, and it would prefer to act sooner rather than later. The other half of the bank is owned by Bank Hapoalim, Bank Leumi, and Israel Discount Bank.

The administrator will sell the bank's credit portfolio and return the deposits. The public had NIS 3.96 billion deposited at Industrial Development Bank at the end of March, and the state had NIS 7.87 billion there. The bank also has NIS 788 million in deposits from other banks. Its credit portfolio is NIS 11.9 billion.

The Banking Supervision division has recently been in contact with the three banks that are part owners in search of a solution to the problem. Three recent key appointments were made. Chairman Shlomo Borochov retired in favor of former Labor MK Ra'anan Cohen, Uri Galili replaced CEO Yehoshua Ichilov, and Arieh Savir was appointed to head the credit division instead of David Blass.

The central bank spokesman refused to comment for this report, saying the bank doesn't comment on matters of this nature.

Since Trade Bank imploded in a huge embezzlement scandal earlier this year, the central bank's policy on small banks has changed to encourage their mergers with bigger banks.

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