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(photo credit: Bloomberg)
The heads of the country's leading banks on Wednesday criticized the government's and the Bank of Israel's handling of the economic crisis. They also expressed frustration at the Treasury's refusal to include the business sector in consultations over rescue packages.
"The Bank of Israel started to act late and at a slower pace compared with other countries," Bank Hapoalim CEO Zvi Ziv said Wednesday at the ninth annual Herzliya Conference. "The real worry, in my view, is the looming redemptions of corporate bonds. The banks are not able and not interested to solve this problem and assume the risk of recycled debt, which they haven't created."
Ziv said the government needed to intervene and find a solution to a ticking "non-credit bomb" or else it would explode in the face of the economy.
"The snowball effect this could create is beyond the capabilities of the Bank Hapoalim and other banks," he said. "It is the full responsibility of the government to find a solution for the crisis in the non-credit sector, as the country's banks are not in a position to provide the credit needs of the economy."
Ziv was also critical of the Bank of Israel's intention to probe salaries and bonus payments being made by the banks.
"The discussion over executive salaries is a non-issue," he said on the sidelines of the conference. "The furor around the subject is pathetic. Bonuses are paid out on the basis of achieved return on equity levels. Looking at the forecasts next year, bonuses will not be paid out."
Also speaking at the conference, Israel Discount Bank chairman Shlomo Zohar said although there had been much talk about government intervention, little has been done because of bureaucratic stumbling blocks.
"I want to utter the great frustration of the banks and the business sector in the failure of the Finance Ministry to include us as partners and advisories in the discussion over interventionist stimulus steps that are being taken," he said. "As a result, solutions are poised to be poorly formulated, ineffective and won't help the economy.
"A good example is the recently announced real-estate aid package. There is no delay of projects because of a shortage of capital, but the real problem of contractors is that there are no buyers, as everyone is waiting for property prices to drop by 10 to 15 percent, and therefore developers are hesitant to start new projects," Zohar said.
Last week, the Finance Ministry announced a multimillion- shekel rescue plan to ease the credit crisis in the real-estate and construction sector and encourage residential housing projects by guaranteeing 10% of the credit needed for contractors to build residential housing projects, while also easing bureaucratic processes for building permits to boost construction and avert a shortage in apartments.
The local nonbanking sector was a relatively new and young market that still had much to learn in terms of regulation, Finance Ministry director-general Yarom Ariav said Wednesday at the conference.
"We have activated unprecedented measures at a volume of billions of shekels to fight the economic slowdown," he said. "But we are also operating without a passed state budget for 2009, while facing a dramatic slowdown in tax revenues. In January, tax collection generated revenues of NIS 14.3 billion, which is 16% less than in the same month last year. If the government's expenditure ceiling doesn't change, we are already running into a deficit of 5% that needs to be financed somehow."
Joseph Wolf, an analyst at Barclays Capital Israel wrote in a report on Israeli banks released Wednesday that the central bank's move seemed closely linked to similar announcements in the United States.
"While the sentiment for this scrutiny is understood as the economy moves into recession, in truth we are not sure that there will be significant changes made post this exercise," the report said. "Base salaries at the banks are heavily negotiated figures with each banks' respective union. In fact, even before the Bank of Israel's announcement, Bank Leumi workers who had been contracted to receive 5% raises in 2009 agreed to a 2.5% figure in light of economic circumstances."