Leviev Responsible for One-quarter of All Growth in Banks' Problem Debts

Doubtful debts rose by NIS 6.4 billion in third quarter to NIS 42.9 billion

The problematic debts of the five big banks jumped in the third quarter of this year by NIS 6.4 billion to reach NIS 42.9 billion. One -quarter of the increase in such debts in the three months from July through September is due to Bank Hapoalim's exposure to Lev Leviev's companies.

The total amount of problematic debt at Bank Hapoalim grew in the third quarter by NIS 2.6 billion, of which NIS 1.5 billion stems from Leviev controlled businesses.

Bank Leumi's exposure to Leviev is much smaller.

In response, Bank Hapoalim said it does not provide information other than its official financial reports.

Also, Leviev's spokesman said they were not able to answer such questions.

Bank Hapoalim is exposed to Leviev not only through its loans to publicly traded Africa Israel, but also through Leviev's privately held holdings and companies in the diamond, real estate and industrial sectors.

Problematic debts are those loans in which banks express doubts about whether they will be paid back. There are various categories of such debts, from those which the bank no longer collects any income from to those that have been refinanced or rescheduled.

Problem debts also include those debts whose borrowers have fallen behind on payments and can also include certain debts which still have no problem in payment, but the bank considers the customer deserves special supervision.

Estimates are that Bank Hapoalim has so far written off about NIS 300 million due to its exposure to Leviev, including both Africa Israel and his private Mamorand holding company.

Africa Israel shares recovered somewhat last week, along with the stock market, and rose 13%. However, since the beginning of the year, the share has fallen 88%. Its bonds are trading at high yields of 31-40%, which demonstrates investors' fears that the firm may not be able to pay off its debts.

Africa Israel has been pummeled by the fall in its two main markets: Russia and the U.S. It lost NIS 2 billion in the January-September 2008 period, compared to a NIS 4.1 billion profit in the same period of 2007.

Much of the losses came from its real estate projects in Miami and Las Vegas.

Today, about 75% of Africa Israel shares, almost Leviev's entire holdings, are held as collateral by the banks, mostly Bank Hapoalim.

Africa Israel owes banks, in Israel and abroad, NIS 13.4 billion. Africa Israel also owes about NIS 9 billion to its bondholders, but again this does not include his private holdings such as Mamorand and Leviev's total debts are much higher.