Gmul Sahar Securities Brokerage Services foresees the state supporting the stuttering Industrial Development Bank (TASE: INDD.GG) , if only to prevent Israel's banking sector from being downgraded by rating agencies.

A downgrade would hurt their status around the world, and make credit more expensive for the banks to obtain.

Yesterday a run on Industrial Development Bank by worried depositors caused its stock to sink 55% on the Tel Aviv Stock Exchange. After the bank incurred losses of some NIS 150 million, the state has decided to close the bank down, with its part-parent banks Bank Hapoalim (TASE: POLI ) and Bank Leumi (TASE: LUMI ) assuming its commitments.

The state will have to persist with its history of shoring up collapsing banks, the brokerage Gmul Sahar Securities Brokerage Services foresees the state supporting the stuttering Industrial Development Bank (TASE: INDD.GG) , if only to prevent Israel's banking sector from being downgraded by rating agencies.

A downgrade would hurt their status around the world, and make credit more expensive for the banks to obtain.

Yesterday a run on Industrial Development Bank by worried depositors caused its stock to sink 55% on the Tel Aviv Stock Exchange. After the bank incurred losses of some NIS 150 million, the state has decided to close the bank down, with its part-parent banks Bank Hapoalim (TASE: POLI) and Bank Leumi (TASE: LUMI) assuming its commitments.

The state will have to persist with its history of shoring up collapsing banks, the investment house says, if it wants to bolster the industry's rating. The most recent event was the implosion of Trade Bank after a low-level clerk embezzled almost a quarter of a billion shekels.

The state, which owns half of Industrial Development Bank, will be dismantling it by selling its assets and credit portfolio. The candidate buyers are Hapoalim and Leumi, as another shareholder Israel Discount Bank (TASE: DSCT) does not have the wherewithal to participate.

Gmul assesses that given the high risk level of the bank's business-sector oriented operations, and the paucity of candidates to buy its assets, buyers will get excellent terms incorporating a particularly high risk premium. Alternatively, the state will be forced to guarantee at least part of the debts assumed by a buyer.

Another effect of Industrial Development Bank's collapse is on the Bank of Israel's attitude towards consolidation.

The central bank has traditionally opposed allowing Israel's already overweening big banks from taking over their minnowy brethren.

However, given the recessionary environment and the growing difficulties the small banks are experiencing, worries over competition have been supplanted by concern for the industry's rating. Gmul sees the central bank rescinding prior objections to consolidation in the sector.

However, no support was evident for Leumi's demand this week to buy Union Bank together with Industrial Development Bank.

Gmul does not see the change in weather at the central bank extending to mergers with medium-sized banks, however, such as First International Bank of Israel (TASE: FIBI) or Bank Discount.

Ultimately, although Industrial Development Bank was a small bank Israel's seventh biggest, with relatively low weight in the banking system, its deterioration due to problem credit attests to the sorry condition of its industry, Gmul points out. The recession's persistence will widen the gap between the big banks, which are cushioned by their lucrative services to households, and the small banks, which depend on the business sector. says, if it wants to bolster the industry's rating. The most recent event was the implosion of Trade Bank after a low-level clerk embezzled almost a quarter of a billion shekels.

The state, which owns half of Industrial Development Bank, will be dismantling it by selling its assets and credit portfolio. The candidate buyers are Hapoalim and Leumi, as another shareholder Israel Discount Bank (TASE: DSCT) does not have the wherewithal to participate.

Gmul assesses that given the high risk level of the bank's business-sector oriented operations, and the paucity of candidates to buy its assets, buyers will get excellent terms incorporating a particularly high risk premium. Alternatively, the state will be forced to guarantee at least part of the debts assumed by a buyer.

Another effect of Industrial Development Bank's collapse is on the Bank of Israel's attitude towards consolidation.

The central bank has traditionally opposed allowing Israel's already overweening big banks from taking over their minnowy brethren.

However, given the recessionary environment and the growing difficulties the small banks are experiencing, worries over competition have been supplanted by concern for the industry's rating. Gmul sees the central bank rescinding prior objections to consolidation in the sector.

However, no support was evident for Leumi's demand this week to buy Union Bank together with Industrial Development Bank.

Gmul does not see the change in weather at the central bank extending to mergers with medium-sized banks, however, such as First International Bank of Israel (TASE: FIBI) or Bank Discount.

Ultimately, although Industrial Development Bank was a small bank Israel's seventh biggest, with relatively low weight in the banking system, its deterioration due to problem credit attests to the sorry condition of its industry, Gmul points out. The recession's persistence will widen the gap between the big banks, which are cushioned by their lucrative services to households, and the small banks, which depend on the business sector.

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