As Bezeq Slips, Banks to Up Debt Provision

The central bank's supervisor of banks will demand that the banking sector make extra doubtful debt provisions for the credit granted to Gad Zeevi for his acquisition of 19.6 percent of Bezeq, after the market value of the state-run phone company's shares continues to slide.

Zeevi paid $650 million for the holding in October 1999, using credit from Bank Hapoalim, Bank Leumi, Israel Discount Bank, First International Bank, United Mizrahi Bank and Mercantile Discount Bank. Since then, the company's value has fallen by tens of percentage points and due to the Zeevi group's financial difficulties, Zeevi has failed to keep up interest payments on the loan. The Bank of Israel demands that the banks make hundreds of millions of shekels in provisions for the lower value of Bezeq and adjust the value of the collateral they hold to the company's market value.

With Bezeq's value further eroded, the sector will be asked to make another NIS 100-150 million in provisions in Q4. Zeevi's stake in the phone monopoly is now worth just $430 million on the market floor, $220 million less than the loan he took out.

In November 2002, the Tel Aviv District Court appointed a receiver for Zeevi's Bezeq stake, at the request of the the banking consortium that financed the acquisition. The receiver will have the shares sold in line with court approval.

Banking sources yesterday said the supervisor of banks has not sent a letter specifying the size of the provision. Nonetheless, in recent talks between supervision staff and the banks, it was made clear there is no alternative to making additional provisions.