Conflicts of opinion between the Finance Ministry and the Bank of Israel are delaying implementation of an agreed-upon arrangement designed to keep

Industrial Development Bank (TASE:

INDD.GG

) from going belly-up.

At the end of last week, the officials involved agreed on an arrangement to keep the bank running. But conflict has arisen over the status of the Finance Ministry's deposits at the bank, and credit to be extended by the central bank.

The Finance Ministry refuses to agree that its deposits be accorded lower status than loans from the Bank of Israel.

Meanwhile, there are conflicts within the Bank of Israel: governor David Klein and Supervisor of Banks Yitzhak Tal reportedly disagree on the agreement's application.

Another delay is being caused by Industry and Trade Minister Dalia Itzik's decision to give the arrangement to the government's legal counsels for an opinion before its implementation.

Industrial Development Bank blames the government and central bank for dragging its feet and worsening its condition by causing acceleration of withdrawals by the public.

This morning some 200 customers showed up at the bank to withdraw deposits, after Industrial Development Bank on Friday published its financial statements.

According to the figures in its report, the recent spate of withdrawals have caused a liquidity crunch so bad that it may default on commitments.

Even though the report is for the second quarter, it specifies that after the quarter from June 30, 2002 the public withdrew some NIS 1.1 billion from the bank.

While the Bank of Israel delays on extends the credit, Industrial Development Bank's overdraft at the central bank is growing. As of last Thursday that overdraft stood at NIS 813 million, but the withdrawals on Friday and today increase that sum.

Its overdraft bears extraordinary interest of 61% a year.

Sources at the Finance Ministry and central bank fumed at the details disclosed in Industrial Development Bank's second-quarter statement, where it warned that it might default on commitments. That created a panic, the officials charge.

The bank rebuts that its intention was full disclosure about its true condition.

Market sources surmise that banks Hapoalim and Leumi, which both have stakes in Industrial Development Bank, will buy its credit portfolio, probably at a discount of 5% to 10%. The two banks, the biggest in Israel, are well equipped to handle Industrial Development Bank's problem debts and to collect monies due.

The decision to sell its credit portfolio, but not control, is due to its complex equity structure involving nine kinds of shares.

Nathan Lipson adds:

Meanwhile, Industrial Development Bank's former chairman, Shlomo Borochov replaced 3 weeks ago by Ra'anan Cohen, says the bank is the safest in the entire Israeli banking establishment.

"Anybody knowing economics and finances knows that Industrial Development Bank is actually the safest bank in the system," Borochov told TheMarker Sunday, as the run on the bank picked up speed.

"I came back from abroad last night and it hurts the heart to see people go mad from the media reports on the bank," he added.

Borochov, who had been appointed by a previous Industry and Trade minister, Natan Sharansky, earned a million shekel net from the bank in 2001. When he left, he received compensation of another million shekels, after 5.5 years service as chairman.