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The situation of

Industrial Development Bank (TASE:


) is worse than originally thought, it appears from its financial statements, released Friday.

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.

That leaves the bank with NIS 2.6 billion in deposits, compared with NIS 3.66 billion at the end of June, and NIS 4.4 billion on December 31, 2001.

The bank's loss for the second quarter reduced its shareholders equity to NIS 527.5 million, from NIS 780 million at the end of 2001.

Its capital adequacy ratio dropped to 11% on June 30, versus 13.9% at the end of 2001.

Its capital adequacy ratio is substantially below the 15% floor the Bank of Israel dictated for Industrial Development Bank, which has protested that Israel's other commercial banks are required to heed a capital adequacy ratio of 9%.

The steep fall in shareholders equity has caused another side effect the bank is in breach of another central bank directive, regarding the maximum ratio of capital that it can lend to a single borrower. For that problem alone, Industrial Development Bank has had to set aside NIS 5.1 million.

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In the second-quarter statement, the bank's management notes that it intends to achieve a 15.5% capital adequacy ratio by year-end, by cutting back its borrowing and new credit to the general public. However, achieving that ratio cannot be done without a capital infusion from the Bank of Israel, the management adds.

Finance Ministry Accountant-General Nir Gilad vehemently opposes infusing new capital, but did agree that the Bank of Israel extend a credit line.

Industrial Development Bank says the terms of the credit from Bank of Israel have not been finalized, nor has the Finance Ministry officially notified it of the change in status of the government deposits at the bank to "deferred".

Because of the central bank failure to extend the promised credit line, Industrial Development Bank's account at the central bank is NIS 813 million in overdraft. The interest on that is 48%, in annual terms, or 61%, adjusted, a rate that Industrial Development Bank says its board rejects.

Bank of Israel on August 29 directed Industrial Development Bank to reduce its overdraft within a week.

At the end of the first half, Industrial Development Bank's credit to the public stood at NIS 11.9 billion, down from NIS 12.4 billion at the end of 2001. Its ratio of problem debt which does not generate income - soared to 21%, to NIS 528.88 million.

Industrial Development Bank ended the second quarter with a loss of NIS 128.5 million, compared with losing NIS 32.3 million in the first quarter, and netting NIS 3.7 million in the parallel quarter.

Just recently the bank warned it would lose NIS 100 million. It missed even that warning by a mile.

Most of its loss was due to climbing provision for doubtful debt, and from declining profits from regular activity due to the recession. Its yield on capital was a negative 39.8%, in annual terms.

First-half provision for doubtful debt was NIS 177.4 million for the second quarter, up 665% from the parallel six months of last year, when it set aside NIS 23.2 million.

Most of that sum, NIS 134.3 million, was set aside in the second quarter.

Despite its losses, Industrial Development Bank paid NIS 9.6 million dividends in the second quarter and reported that it has not reached a decision on third-quarter dividends.