Rapaport Magazine

Israel

By Avi Krawitz
Banking Backlash

Bank credit to Israel’s diamond sector again came under the spotlight as trading remained quiet in August and many dealers took their annual vacations. First International Bank of Israel notified clients of a change to its credit policy prompting the Israel Diamond Exchange (IDE) to immediately work to mitigate the impact.
   First International Bank’s change in policy relates to it “suddenly” asking the diamond industry to provide different collateral on loans, which are more stringent than those required of other industries, Yoram Dvash, IDE’s president, explained. In a letter to bourse members, Dvash said, “We cannot allow such one-sided unilateral decisions to be made without a fight. The banks and the regulators should know that the diamond industry is important to Israel’s economy and to its banks.”
   A bank spokesperson assured the trade that it will continue to give credit to the diamond sector even as it “implements a required credit caution” toward the industry. The bank declined to provide additional comment to Rapaport Magazine about its new policy.
   However, the issue of bank credit runs deeper than one bank’s policy. As Dvash noted, the move resulted from pressure from the Supervisor of Banks, the regulator at the Bank of Israel. That implies that other banks may follow First International’s lead. Already, Bank Leumi, at the time the largest lender to the local trade, closed its diamond-lending unit in 2015.
   The policy change also forced IDE to focus its lobbying efforts at the government level rather than just negotiating with First International Bank. IDE has created a special “professional” committee to deal with the issue. In addition, Dvash claims senior officials are “fighting in our favor” in Israel’s parliament, the Knesset.
   Meetings have been set up with the Supervisor of Banks and the governor of the Bank of Israel, while Dvash has already met with Smadar Barber-Tsadik, CEO of the First International Bank. An emergency summit was being planned to update bourse members on the situation after the summer break, Dvash said.
   “We face a challenging period and I am not sure we will succeed in everything but we will leave no stone unturned to get our message across,” Dvash said. “The resources, assets, exports and local sales as well as the bourse’s reputation have always been enough to ensure that IDE members could attract credit.”

Vacation Mode
   Activity was very quiet in the exchange, with the trading floor and bourse services effectively closed from August 15 to 28 for the annual summer vacation period. Dealers were largely focused on preparing for this month’s Hong Kong Jewellery & Gem Fair, hoping the event would spark stronger polished trading activity.
   There was some foreign buyer traffic in the bourse, with Belgian and U.S. dealers visiting during their respective vacation periods. The IDE tried to capitalize on that by opening up to overseas buyers the Blue & White Fair, which is usually reserved for local traders. Still, dealers noted the market remained quiet. They were focused on satisfying steady U.S. demand, while orders from Asia Pacific remained slow in the run up to the Hong Kong show.
   The Israel pavilion at the show will feature 84 companies, while another 15 Israeli firms will exhibit at other locations. Shmuel Schnitzer, chairman of the Israel Diamond Institute (IDI), was hopeful the show would be positive, despite the challenging conditions facing the industry. “We believe in Asian markets and are there for the long haul,” he said.

Synthetic Concerns
   There was also increased awareness about synthetic diamonds amid concerns that supply is increasing, making the trade more vulnerable to undisclosed mixing with natural diamonds.
   IDE subsequently updated its guidelines to create a clear distinction between natural and synthetic diamonds. Included in the changes was a reminder that synthetics are banned from the trading floor of the IDE, and that any transaction by members should include a statement whether the diamonds are natural or synthetic. The bourse has testing services available in the rough trading floor equipped with machines developed by the Gemological Institute of America (GIA) and De Beers to help in detecting synthetics. 

Article from the Rapaport Magazine - September 2016. To subscribe click here.

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