Israeli banking regulator cautions banks on dividends distribution

By Al Mayadeen English
Source: Agencies
13 Nov 2023 19:44

The regulator underscored the necessity for banks to factor in the evolving circumstances and their consequences when evaluating capital plans and decisions regarding dividend allocations.

The headquarters of the Bank of "Israel", the regime's central bank, in "Kiryat Ben-Gurion" in Al-Quds (AFP)

The banking regulator of "Israel" advised commercial banks to exercise prudence in distributing dividends and executing share buybacks, emphasizing the importance of a conservative approach to maintaining credit flow during a period of war and anticipated economic downturn.

In a communication addressed to banks, Daniel Hahiashvilli, the supervisor of Israeli Banks, highlighted that since the commencement of the war on Gaza, economic predictions have been adjusted downwards and may not yet fully capture the projected downturn.

He further emphasized the volatility of financial markets, the heightened credit risks, and the anticipated substantial increase in loan losses.

Hahiashvilli underscored the necessity for banks to factor in the evolving circumstances and their consequences when evaluating capital plans and decisions regarding dividend allocations.

He stressed the importance of maintaining adequate capital reserves to address diverse risks and ensure continued customer support, specifically by extending credit to creditworthy individuals.

He also warned that restricted access to credit could exacerbate the economic crisis, complicate recovery, and ultimately lead to heightened credit losses.

Hahiashvilli acknowledged that the banking system entered the wartime phase with robust liquidity and sufficient capital reserves. However, he refrained from outright prohibiting dividends and buybacks, a measure taken by the central bank at the onset of the COVID-19 pandemic.

The banks, required to review their strategies and respond to the directive by Wednesday, indicated that their intentions would be disclosed alongside their third-quarter results, commencing with Bank Hapoalim's report scheduled for Thursday.

"Israel's" largest bank, Leumi LUMI.TA, has announced its intent to allocate a loan loss provision of up to 1.1 billion shekels ($270 million) in the third quarter. This step aims to safeguard the bank against potential repercussions stemming from the conflict between Israel and Palestinian Hamas militants.

"Whilst the other banks have yet to make announcements, the anticipated macro deterioration shall require further provisions," said Jefferies analyst Joseph Dickerson.

However, "the conclusion of our balance sheet 'burndown' analysis shows banks' (are) adequately capitalized to absorb losses," he noted