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Bank of Israel governor David Klein will inform Prime Minister Ariel Sharon today that he plans to appoint an administrator for the Industrial Development Bank if the state does not inject additional capital into the bank.

An administrator removes management authority from an institution's managers and shareholders, and would prevent the bank accepting new deposits or making new loans, effectively shutting it down. This unusual step is taken when the bank's ability to meet its commitments becomes questionable. The administrator handles existing clients according to a plan determined with the Supervisor of Banks, and the eventual goal is liquidating the bank.

Klein and Banks Supervisor Yitzhak Tal reached the decision after Industrial Development Bank announced it expects to post a NIS 100 million second quarter loss and will fall far short of the minimum capital ratio required by the central bank. The loss is mainly from enormous provisions for doubtful debt on loans to the Peled-Govony group, Gad Zeevi and various other companies.

The central bank fears Industrial Development Bank's situation will continue deteriorating and it prefers earlier rather than later action. Since Trade Bank imploded in a huge embezzlement scandal earlier this year, the central bank's policy on small banks has changed to encourage their mergers with bigger banks.

Due to the deterioration of the 50 percent state-owned bank, an urgent meeting was called for today in Sharon's office with Finance Minister Silvan Shalom, Trade Minister Dalia Itzik, Klein and the bank's new board chairman, Ra'anan Cohen, who took office only this weekend. The other half of the bank is owned by Bank Hapoalim, Bank Leumi, and Israel Discount Bank.

The bank's second quarter losses will cut its capital adequacy to below 12 percent - the Bank of Israel requires a 15 percent minimum capital ratio. The bank says it would need a NIS 200 million injection from the treasury to meet the requirement, but the treasury spurns the request and has no plans to dig the bank out of its own capital inadequacy hole.

The administrator will sell the bank's credit portfolio and return the deposits. The public had NIS 3.96 billion posited at Industrial Development Bank at the end of March, and the state had NIS 7.87 billion there. The bank also has NIS 788 million in deposits from other banks. Its credit portfolio is NIS 11.9 billion.

The Banking Supervision division has recently been in contact with the three banks that are part owners in search of a solution to the problem. Three recent key appointments were made. Chairman Shlomo Borochov retired in favor of former Labor MK Ra'anan Cohen, Uri Galili replaced CEO Yehoshua Ichilov, and Arieh Savir was appointed to head the credit division instead of David Blass.

If an administrator is appointed for Industrial Development Bank, it will be the second such appointment this year after the appointment of an interim manager for Trade Bank in April. In the early 90s an administrator was appointed for Agriculture Bank after it got in trouble with problematic credit.

The central bank spokesman refused to comment for this report, saying the bank doesn't comment on matters of this nature.