Bank Leumi (TASE:LUMI) is the only one of Israel's five banks that can continue granting large amounts of credit, according to calculations by the Bank of Israel.

The Supervisor of Banks found that the growth potential of the banking establishment's risk-weighted assets stands at NIS 70 billion, of which NIS 40 billion are at Bank Leumi. In other words, that is the amount of credit Leumi, controlled by chief executive Galia Maor, can still extend.

Risk-weighted assets refer to the banks' assets weighted according to their innate risk. For instance, credit to the general public, booked as an asset in the balance sheet, is considered high-risk.

One of the assumptions behind the NIS 70 billion potential is that the banks' 2002 profits will be identical to their 2001 profits, which is unlikely. Others are that no dividends will be distributed, and that the banks will reach a minimum capital ratio of 9%.

The minimum capital is the percentage of the risk-weighted assets of the bank.

If the bank profits fall, the growth potential of credit does too. In the scenario of total potential reaching NIS 37.6 billion, Leumi would have the greatest credit growth potential NIS 25.5 billion. Bank Hapoalim's would be only NIS 3.4 billion, First International Bank's would be NIS 5 billion, and that of the other banks about NIS 1 billion to NIS 2 billion each.

The banks are also unlikely to want to drop to the threshold of their permissible minimum capital ratio. Therefore, their real credit capacity will be lower. On the other hand, when the economy does swing up, so will the banks' profits, which will increase the capital component.

According to the central bank, the five big banks' minimum capital ratio dropped from 10% in 1997 to 9.4% in 2001. Tier-1 capital decreased from 8.9% to 6.2% in that time, while tier-2 capital increased from 1.1% to 3.2%. The change was caused by the banks stepping up activity without increasing their tier-1 capital, as they held no public issues while continuing to distribute dividends to shareholders.

During the first quarter of 2002, the minimum capital ratio trend reversed, bringing the level to 9.7%.