Israel Discount Bank has exhausted its credit limits and by the end of June will have to cut the loans on its books to meet the central banks's capital to risk ratio requirements, Supervisor of Banks Yitzhak Tal yesterday told a conference at Tel Aviv University.
Discount Bank's inability to increase its credit portfolio will stunt the bank's growth and any possibility of increasing its financing revenues.
In Discount Bank's case, the problem is compounded because it already suffers from relatively low financing profits because of loan spreads and lost debts in the construction sector. The implication is that large businesses can no longer regard Discount as a major source of finance.
The Bank of Israel's analysis is based on several parameters. The financial results of the banks for 2002 will be identical to those of 2001, the banks will not issue dividends this year, and will use their full ability to raise secondary capital (issuing long-term warrants). The analysis indicates that to be within its required capital to risk ratio of 9 percent, Discount Bank will have to reduce loans to the public by NIS 1.8 billion in 2002.
To avoid this situation, Discount Bank will have to increase its capital by issuing shares or selling assets. Among the bank's principal assets are Israel Discount Bank of New York, Discount Mortgage Bank, and Mercantile Discount Bank. Israel Discount Bank also owns a 26 percent share in the First International Bank of Israel.
A spokeswoman for the bank said its capital to risk ratio is higher than is required and the bank has enough assets and means to ensure its growth.
She said, however, that the capital to risk requirements were a factor impeding the bank's growth and that it was looking at ways to widen its capital base. She said in 2001 the bank had increased its credit portfolio by 2.6 percent and expected to continue to increase it in 2002.
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