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Maalot forecasts higher insolvency rates in the future
By Sharon Shpurer
Tags: business, bank, israel 

Bank Leumi is planning to issue up to NIS 1 billion in commercial paper. Maalot Israel Securities Rating company has granted these securities an A1+ rating, based on the bank's AAA rating for its long-term obligations.

Leumi joins three other companies that have so far issued commercial paper - Africa Israel, Gama Management and Clearing and Nitsba Holdings. Commercial paper are instruments used for raising short-term funds from institutional investors for up to 270 days. The issue of these securities was made possible by the launching of financial funds that try to copy the performance of Makam short-term government loans. These funds need a short-term investment instrument that will allow them to try to beat the annual returns of investments in Makams.

Maalot's rating takes into account the impact of the credit crisis on Leumi, whose investment portfolio includes NIS 7.3 billion in asset-backed bonds, most of which (about 80%) have an AAA rating.
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The decline in the value of these bonds shaved NIS 133 million off the bank's equity capital (before taxes) in the third quarter of 2007, and is expected to trim off another NIS 90 million (before taxes) in the fourth quarter.

These declines are temporary, with only a few million dollars being classified as permanent write-offs that will affect the bank's current profits.

Another point addressed by Maalot's analyst is Leumi's provisions for doubtful debts, which were among the lowest in the banking system, thanks to a decline in the provisions for the business sector. Even so, the analyst notes that the level of provisions throughout the banking sector - currently less than 0.5% - does not reflect a permanent situation. This figure should be treated with caution and the banks should be expected to prepare for a higher rate of business insolvency in the next few years - by using today's surplus profitability.
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