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What is truly interesting reading First International Bank's report, are the explanations of the bank's business policy.

Management describes in simple, clear language the hardships of the past two years that followed entanglements in the credit sector, and the resultant conclusions it hopes to implement. The review leaves the reader with a sense of the bank's trauma. The explanations include "conclusions," "measures implemented" and "adapting business policy to relevant economic conditions," which leave no doubt as to the severity of the shock.

A bank that for many years had minimal provision for doubtful debt - never exceeding 0.3 percent of its credit portfolio - suddenly faced the unfamiliar situation of having to set aside a massive NIS 864 million for doubtful debt, 1.7 percent of its credit portfolio. A bank that never lost a penny suddenly posted a single-year loss of NIS 66 million. The bank considered to have the cleanest credit portfolio in the sector suddenly saw its problematic debt soar to 35 percent, reaching NIS 5 billion.

None of this could leave the bank without rethinking its business policy, so yesterday chairman Shlomo Piotrkowsky and CEO David Granot announced their plans:

l Reduced centralization in the credit portfolio, both in terms of borrower size and of sectors, the direct result of credit losses on the Zeevi-Bezeq deal, Tevel and UPC, and Gilat, collectively responsible for 60 percent of the bank's provision for doubtful debt. As far as borrower size, the bank's entanglement with Gad Zeevi, who had become the bank's pet customer in recent years, led to substantial losses for First International on Zeevi's other business.

l Adjusting business policy to economic conditions: The bank says it will use two methods. First, by rationalizing commissions and financial margins to each client's risk level and contribution or profits. Second, by expanding operations in mortgages, consumer credit, provident funds and credit cards. The first stage has already been implemented, but the second is also rather banal as First International has tried for years to expand its market share in retail banking without resounding success.

l Selective expansion of activity with existing clients and recruiting new ones.

l Streamlining: In the past, the bank's rapid growth was its main efficiency coefficient, as it boosted staff slowly compared to growth. Now management acknowledges that the serious recession will require more active measures, but a Granot-headed team says layoffs and early retirement are not on the agenda.

These are undoubtedly necessary and obligatory steps in First International's situation, but clearly without economic recovery and recovery for major borrowers, these steps alone will not mean a rapid return to high profitability. So the most important message from yesterday's press conference was the need for inter-bank mergers, including at First International. Piotrkowsky adamantly denies reports that the Safra family is looking to sell or merge the bank, but in the same breath he clarifies that the future structure of the banking sector will be based on mergers. "It is proper, appropriate and desirable," he said and his words were more than a hint about the real solution needed.