'We haven't reached the bottom yet'

Manufacturers Association: 67,000 workers to lose their jobs in 2009.

Rony Hizkiyahu 88 248 (photo credit: Ariel Jerozolimski)
Rony Hizkiyahu 88 248
(photo credit: Ariel Jerozolimski)
The global financial crisis has yet to bottom out and it is imperative to swiftly implement interventionist measures in the financial markets, Supervisor of Banks Rony Hizkiyahu said Monday. "As we deal with the crisis in the real economy, we need to remember that we haven't reached the bottom of the financial crisis," he said at TheMarker Finance Conference in Tel Aviv. "We cannot allow a bank failure in Israel," he added. "The economy is small and the contagion could cause the financial system to collapse. Our goal at the Bank of Israel is to preserve all Israeli banks." Hizkiyahu said Israel's banking system was facing global and domestic challenges. "The banking system has to deal with the contraction in capital market activity, the decline in credit sources in Israel and the expected slowdown in the real economy," he said. Hizkiyahu said Israel's banking system had entered the crisis in a strong position and with a sturdy base featuring high levels of profitability and high capital-adequacy ratios. This favorable starting point enabled it to cope with the impact arising from exposure to global markets, activity in structured financial instruments, and exposure to borrowers active abroad and to the domestic capital market, he said. Hizkiyahu reiterated that Israel's banking system was stable and was acting to reduce exposures and risks, and that its stability was a major factor behind the, so far, relatively moderate effects of the global crisis on the local economy. But he warned that as the crisis deepened, time was running out and therefore the Knesset Finance Committee must approve the Finance Ministry's economic and financial-aid packages swiftly. "The crisis is not waiting for us," Hizkiyahu told The Jerusalem Post on the sidelines of the conference. "We should have come out with a big stimulus plan many months ago, making adjustments as we go along." Also speaking at the conference, Israel Securities Authority chairman Zohar Goshen expressed concern over the market failure in the corporate-bond market and the credit crisis in the non-banking sector. "The root of the problem in Israel is in the non-banking sector," he said. "The capital-market reform in Israel resulted in half of the NIS 700 billion credit market, which is NIS 350 billion coming from the non-banking sector, with the other half coming from the banks. About NIS 160 billion of the NIS 350 billion in non-banking credit could be pulled from the market at any time by savers." Goshen said there was a growing problem in the corporate-bond market. "Bonds of hundreds of companies have been trading at junk levels," he said. "With the capital market having dried up, the non-banking sector is not providing NIS 6 billion to 10 billion a year in credit. Action is needed to encourage financial institutions not to sit on the money, and to inject capital and new credit into the market." Real-estate tycoon and controlling shareholder of Delek Group Ltd. Yitzhak Tshuva said 2009 would be a turnaround year. "2009 will still be a difficult year, but I forecast that the turnaround will happen next year, and 2010 will be a year of growth and prosperity," he said. "Interest rates are continuing to come down steeply, and as a result people will prefer to invest instead of putting the money in the bank and seeing a negative return." The Manufacturers Association of Israel on Monday published a pessimistic outlook for 2009, with the economy growing at a snail's pace of 0.8%. It said 67,000 workers would lose their jobs in 2009, with 45% of those job losses coming from the business sector. "From a survey we have conducted, 22% of factories have already started to cut their work force at an average of rate of 10%," Manufacturers Association president Shraga Brosh said. The survey, which was conducted over recent days among 200 factories, showed that 37% had encountered difficulties receiving credit from banks, 35% were suffering from a downturn in domestic sales and 20% reported a slowdown in demand and global sales, he said.