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The Bank of Israel and others have been insisting that Israel's banks are in fine condition, especially compared with their peers abroad. Yet yesterday, the supervisor of banks at the very same Bank of Israel warned that the quarter-billion shekel loss Bank Hapoalim warned of for the fourth quarter of 2008 is just the start.

Make no mistake, Roni Hizkiyahu stressed, Israel's banks remain strong, in "both absolute and relative terms." The supervisor of banks was speaking on a panel devoted to the financial crisis.

The banks are stable. The system is not in peril, Hizkiyahu said. However, sobriety is in order. "The financial crisis isn't over," Hizkiyahu said in an address to the Herzliya Conference. "Its ramifications for the financial system and the banks remain to be seen." The first sign of the trouble to come was Bank Hapoalim's admission that it will be posting losses for the last quarter of 2008 and for the whole year, Hizkiyahu said.

Karnit Flug, the director of research at the Bank of Israel, pointed out that while the value of banks overseas dropped by 70% to 94% mid-2007 to January 2009, the value of Israel's banks had fallen by "only" 35% to 60%.

The point is, Hizkiyahu said, threats loom, and the banking system has to be strengthened to withstand the blows that may fall.

Treasury director-general Yarom Ariav noted on the panel that the dernier cri is to be pessimistic. "And I don't mean to deviate from that," he quipped.

Ariav noted that the state's tax revenues fell 16% in January 2009 compared with the same period of 2008, and predicted that tax collection "will fall dramatically" this year compared with the last year.

"Tax collection in January amounted to just NIS 14.3 billion," Ariav said. "If costs aren't adjusted, we will run a budget deficit of 5%."

The labor market is a seismograph of the economy, and rising unemployment is the most worrying aspect of the crisis, Ariav said. "The government is employing unprecedented means, amounting to billions of shekels, to fight the slowdown," he said, underscoring programs to counter the rising numbers of layoffs in the business sector.