Central bank seeks tools to ease credit crisis

Eckstein: We are examining whether banks are refusing credit lines or loans to businesses for reasons not related to business risk.

bank of israel 248.88 (photo credit: Ariel Jerozolimski)
bank of israel 248.88
(photo credit: Ariel Jerozolimski)
The central bank is considering additional policy tools to ease the cost of credit loans to the private sector, Bank of Israel Deputy Governor Zvi Eckstein said Thursday. "We have been operating an expansionary interest-rate policy, lowering rates to 1 percent," he said at a seminar in Tel Aviv organized by the Israel Export Institute. "In an expansionary policy, a 0% interest rate is the bottom limit. "By lowering interest rates we are easing the credit cost to the private sector as a whole. But not all banks are passing on recent interest-rate cuts to businesses, since risk-premium levels have also gone up. Therefore, the Bank of Israel is examining additional policy tools to ease credit lines." Eckstein said the central bank was examining whether the banks are refusing credit lines or loans to businesses for reasons not related to business risk. "One of the main problems of the credit crisis is the failure of the nonbanking sector as a source of financing," he said. "The banking sector will not be able to answer all credit needs, and therefore one of our main tasks is to try and revive the nonbanking sector." Israel Export Institute chairman David Artzi praised the Bank of Israel for acting to help exporters. "Since the shekel-dollar crisis hit the export industry, even before the global financial crisis, the central bank has been the only body that has taken courageous steps, such the purchase of foreign currency and aggressive interest-rate cuts, to stem the dollar dive," he said at the conference. "Now the shekel-dollar exchange rate is back at NIS 4. If the exchange rate would have remained around NIS 3.20 against the dollar, where it was only nine months ago, we estimate that another 50,000 workers employed at export-oriented companies would have lost their jobs." In an effort to help exporters cope with the credit crisis, Artzi called upon the government to ease criteria for receiving insurance coverage for export-credit transactions offered by Ashra, the Israel Export Insurance Corp. Ltd., which is fully owned by the government. "Today the banks charge higher fees and have severed credit conditions, as they are faced with higher risk premiums amid the global financial crisis," he said. "One solution to the credit problem is to expand insurance cover offered by Ashra for exporters to 100 percent, which we estimate could support potential financial deals of a volume of $3 billion." Ashra encourages exports by insuring medium- and long-term export-credit transactions (one to 10 years) and investments abroad, offering exporters insurance coverage of up to 95% against political risks and up to 80% against commercial risks. The Manufacturers Association of Israel said in a study released Thursday the global recession would force Israeli hi-tech and industrial companies to seek investors and partnerships in Israel and abroad to sustain growth this year. "The global recession and economic crisis in Israel are poised to boost mergers and acquisition activity in Israeli industry," association president Shraga Brosh was quoted as saying. "In a period of recession, many companies in Israel and abroad have to become more efficient, and one of the possibilities is mergers and acquisitions, in particular when company valuations are low, making them more attractive for investors." According to data compiled by the association, 50 local industrial companies (including start-ups) were acquired by foreign companies in 2008. Total volume of acquisitions in 2008 amounted to $3.52b., of which 77% was in hi-tech, compared to $5.02b. in 2007. Foreign companies last year bought 10 local companies active in the metals, chemicals and pharmaceuticals industries at a total cost of $820m. The volume of foreign acquisitions generated by Israeli companies was to $10.9b. in 2008, up from $3.15b. in 2007. Last year, local companies bought 34 foreign companies, compared with 56 in 2007. The largest acquisitions last year were Teva Pharmaceutical Industries' purchase of Barr Pharmaceuticals for $9b., Orbotech's acquisition of US-based Photon Dynamics for $290m. and Red Hat's acquisition of Israeli virtualization company Qumranet for $107m. In addition, 35 Israeli industrial companies in 2008 bought local companies for a total volume of $812.4m., compared with a volume of $2.01b. in 2007.