Gmul Sahar Securities Brokerage Services, which manages investments for provident and pension funds, withdrew an NIS 140 million deposit from Industrial Development Bank this week. The withdrawal stemmed from Gmul Sahar's concerns about the bank's stability after its situation deteriorated.
A foreign bank also informed the 50 percent state-owned bank its credit lines had been shut down due to concerns about its shaky state.
Industrial Development Bank has NIS 5 billion in deposits from institutional investors, insurance companies and banks, which opted to put their money there because of high interest rates it offered.
Due to the withdrawals, the bank's management plans to utilize its credit lines from Bank of Israel. The sides are negotiating the credit terms and guarantees that Industrial Development Bank will put up for the loans. Bank of Israel fears that the accelerated withdrawals will necessitate large-scale central bank credit and hasten the bank's fall.
At this stage Bank of Israel prefers to wait for a recovery plan before making more momentous decisions. In contrast, the Finance Ministry would rather solve Industrial Development Bank's problems by appointing an administrator or selling its credit portfolio and deposits and closing the bank down. The treasury fears that if the bank keeps bleeding or even collapses, the state will be force to inject hundreds of millions of shekels.
Finance Minister Silvan Shalom told the bank's management and the Bank of Israel that he has no plans to inject more capital into the tottering institution. The treasury is also opposed to the proposal that the state should buy the other half of the bank from its shareholders - Bank Hapoalim, Bank Leumi and Israel Discount Bank - to create a viable capital structure for privatization. There is concern that the move will cost the state dearly in financing and could leave it holding the bag - that is, the bank - for a very long time.
Both Industrial Development Bank's CEO and Gmul's spokeswoman refused to comment for this report.
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