The Ministry of Finance announced today that, as part of the new economic plan, it would double the guarantees to the banks for strengthening their capital from NIS 6 billion to NIS 12 billion. The guarantees will be used for the issuing of bonds by the banks, and will enable them to raise capital at a lower interest rate.
The guarantees will amount to 95% of the amount of the issue for ten years. The banks will be able to use the guarantees until mid-2010. Accountant General Shuki Oren is responsible for the staff work on the plan.
In order to meet the Bank of Israel-mandated 12% capital adequacy ratio by the end of 2009, and to increase credit in the economy by 5%, the banks need to increase their aggregate shareholders' equity by NIS 10.9 billion. Bank Hapoalim (TASE: POLI; LSE:80OA) will have to raise the largest amount, NIS 3.9 billion, and Israel Discount Bank (TASE: DSCT) will have to raise NIS 2.7 billion.
Oren believes that there is little chance that the banks will use the full amount of the guarantees on offer.
Banking sources welcomed the new plan. They said that they expected to see that the new guarantee will be friendlier and simpler.
Published by Globes [online], Israel business news - www.globes-online.com - on April 23, 2009
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