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Victor Medina, the outgoing CEO of United Mizrahi Bank, has over the past few years boasted that he was able to steer clear of the collapse of various enterprises because of his conservative loan policies. But the very week that Medina announced his departure from the bank, Arie & Ofer's difficulties were revealed - and Mizrahi was found to be its main creditor. Of the NIS 450 million that the construction company owes, some NIS 180 million are owed to Mizrahi.

The bank is asserting that it is well protected since it has good guarantees and a large percentage of the credit is in the form of guarantees to apartment buyers. Nevertheless this goes to show that even a conservative credit policy is not enough to protect a bank from the crisis in the real estate sector.

The Bank of Israel this week declared that the recession was over, but this made no impression on the many construction companies teetering on the verge of collapse. Even if the economy is on the right track, it will take time to reach the real estate market.

The construction branch is divided between apartments and commercial buildings. Construction of apartments was less badly affected except in peripheral areas, where there is greater unemployment and consequently less buying power. The commercial construction market, however, was flooded in the late 1990s, the supply in the Dan region today is tremendous and prices have plummeted. The owners of one building are offering floor space in a five-year contract for a mere $5-6 per meter. As one banker put it, the income from a rental like this will not even cover the interest on the owner's loan.

Only the largest companies have survived, and it is those in the second and third ranks that are now floundering. The banks are also losing their patience with them. No one can say whether the real estate market has hit rock-bottom, or whether there are worse days ahead. But all agree that no breakthrough is in sight in 2004.

The real end of the recession will come only when the real estate market revives.