'More supervision could avert home-grown subprime crisis'

Looking at the future of the local banking industry, the large banks agreed that the main catalyst for growth was outside the country's borders.

Rony Hizkiyahu 88  224 (photo credit: Koby Kantor/Courtesy Globes)
Rony Hizkiyahu 88 224
(photo credit: Koby Kantor/Courtesy Globes)
The country could be facing a future subprime crisis "made in Israel," unless the growing local non-banking financial sector is supervised like banking institutions, Shlomo Sohar, chairman of Israel Discount Bank, warned on Sunday. "The main source of the problems in the US subprime mortgage crisis was not coming from the banks, but the source was in the non-banking sector," Sohar said at the Globes Israel Business Conference 2007 in Tel Aviv. "To prevent such a development in Israel, the country's supervisory bodies need to unite as soon as possible." Also speaking on the panel, "What's worrying the banks?," Supervisor of Banks at the Bank of Israel Rony Hizkiyahu said the increase in capital market risks requires risk-focused management in the whole financial system and not just in the banking corporations. "Thus a uniform and consistent supervisory framework is needed, aligning the requirements currently applicable to other financial institutions," said Hizkiyahu. "A uniform supervisory system would locate and handle risk centers more efficiently, and would react more promptly to unexpected developments and identify problems at an early stage." At the same time, Hizkiyahu said that although the turbulence in the world markets and developments in the asset-backed and subprime bond markets did not bypass Israel's banks, their effects did not endanger the stability of the system. "Israeli banks' exposure to the subprime crisis is unsubstantial because they made the correct decision not to increase their risk," said Hizkiyahu. "The financial statements of the banks reveal the exposure to asset-backed instruments amounts to about NIS 40 billion. The amount of direct exposure to the subprime market is immaterial." Looking at the future of the local banking industry, the large banks agreed that the main catalyst for growth was outside the country's borders. "Today in order to grow we need to go outside of Israel to serve our customers everywhere around the world," said Eitan Raff, chairman of Bank Leumi. "No one waits for us and multiples are very high. Therefore in order to create value, we need to aim for places, where we have a relative advantage to others to expand our business." Similarly, Zvi Ziv, CEO of Bank Hapoalim, said the potential of the foreign market was very attractive for Israeli banks, in particular in the Far East. Medium-sized banks, however, given their limited buying power, continued to see potential and focus mainly on the local market. "We still see much growth potential in the development of the domestic market for example in the consumer credit market," said Sohar.