The Bottom Line / Going fast down the drain
The most frightening item in the financial reports of the two biggest banks, Hapoalim and Leumi, was the speed: The speed with which the billions lent to the telecommunications sector passed to the problematic loan category.
The most frightening item in the financial reports of the two biggest banks, Hapoalim and Leumi, was the speed: The speed with which the billions lent to the telecommunications sector passed to the problematic loan category. The speed with which this sector went from the assured and the growing, to the problematic and threatening. The sector that boasted of its ability to supply super-fast technology for data transfer and high-speed surfing on broadband, now finds itself quickly becoming a thorny issue for the banks, in a way that no sector has done before.
At Leumi this rapidity is all the more frightening; the bank reported yesterday that its total problematic debts to the telecoms and computer services sector reached NIS 3.7 billion in December 2001, compared to a trifling NIS 96 million a year earlier. These problematic debts now constitute 33.6 percent of the total credit to this industry, compared to less than 1 percent in 2000.
The provisions for doubtful debts that Leumi set aside for this lot totaled NIS 382 million last year, compared to only NIS 5 million in 2000.
Bank Leumi is the major financier of the cable and satellite television companies, whose debts account for most of this provision. To complete the picture, add Gilat satellite, Channel 10 and Gad Zeevi, who bought a fifth stake in Bezeq.
Bank Hapoalim also posted a meteoric rise in provisions for doubtful and problematic debts in telecoms. In 2001, the bank posted provisions of NIS 187 million, compared to NIS 4 million in 2000. Problematic debt meanwhile soared from NIS 177 million to NIS 1.57 billion.
These figures can teach us the depth of the telecoms' crisis and the sore disappointment it has brought on those who financed the saga, and some troubled questions must be asked concerning the banks' involvement. Last year was indeed a particularly bad year in the world economy, and the high-tech sector took the brunt of it. The U.S. suffered the greatest terror attack in history, and the level of violence with the Palestinians worsened. But these factors could have hit all sections of the economy, some more than others, but nowhere has there been such a dramatic rise in problematic debts.
A year ago when the banks released their reports, heads of the banking world forecast a dim future. Today they admit that they failed to forecast the depth of the crisis, and that's the only error they are prepared to admit. They said not a word about their enthusiasm to finance the competition between satellite and cable television in buying content; and not a peep on the strange concentration in financing all players in the market (Bank Leumi), which was supposed to spread their risk, but in the end may only have served to inflate it. They also fail to mention their inability or reluctance to recognize the reality and the fact that only the banking supervisor did it for them, and was heavily criticized for doing so. And, in among it all, they prefer to point a finger at the regulator who is holding up the merger of the cable companies - that magic solution that will thrust the cable, satellite companies and banks from this crisis. The regulator has meanwhile given everyone something else to sweat over.