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Auditor's Report: Inefficiency in Treating the Economic Corona
The State Comptroller's report examining the functioning of the financial system during the Corona crisis raises a number of shortcomings: the Capital Market Authority has fallen asleep in maintaining our savings and the regulatory bodies have acted uncoordinatedly with regard to state-guaranteed loans.
The positive: the speed of raising the debt needed to provide assistance to citizens
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State Comptroller
Matanyahu Engelman
Ministry of Finance
The Accountant General
Financial institutions
finance
Walla!
Of money
Tuesday, 31 August 2021, 10:29 Updated: 14:08
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Part of the State Comptroller's report published today addresses an issue defined as "financial services, credit and stability of financial entities in the corona crisis."
Despite understanding the extreme circumstances that required decision-making and changing regulations almost overnight, the auditor criticizes, sometimes harshly, some of the regulators' preparations for the crisis and how to deal with it.
For example, it turns out that the institutional bodies have not been instructed on how to avoid exposure to changes in the capital markets, so that they will insure the money of savers.
In other words: if a global economic collapse had occurred, our pension might have been at risk.
The comptroller also stated that the system of providing state-guaranteed loans was poorly conducted, so that those who seemed to need them the most: small business owners as well as business owners in the Arab sector, were discriminated against in receiving the funds.
The Comptroller also notes that the coordination between the regulatory bodies, including the Bank of Israel, the Accountant General in the Treasury, the Capital Market Authority and others, did not cooperate optimally between them.
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Demonstration of business owners 2020. In fact, small businesses received at least state-guaranteed loans, while they needed it most of all (Photo: Reuven Castro)
This is what the comptroller, Netanyahu Engelman, writes in the report: The outbreak of the corona virus was manifested in a sharp slowdown in economic activity in the world, and led to an economic crisis in Israel as well.
This crisis was characterized by the liquidity crisis of many households and businesses.
The State Comptroller's Office examined the financial services and credit provided to the public during the Corona crisis and the resilience of the financial entities during the crisis.
The inspection was conducted at the Bank of Israel, the Capital Market Authority, the Securities Authority, the Electricity Division of the Ministry of Finance and the Tax Authority. The
audit found that there was no cooperation between Taxes Authority.
In addition, the Bank of Israel's cooperation with the Knesset in the decision-making process that balances the level of guarantees and credit risk could have been more beneficial in achieving the goals of the plans, since the cooperation may create a more beneficial fit between the interest rate on credit provided by the Bank of Israel , And the rate of guarantee provided by the state on the bank credit granted to businesses under state-guaranteed funds.
Our pension funds (illustration): "It has not been criticized that the Capital Market Authority has provided the institutional bodies with guidelines for managing investment risks regarding managed portfolios in the event of a crisis, in order to reduce the scope of their exposure and thus protect members' money" (Photo: ShutterStock)
The Capital Market Authority did not respond in time
It further emerged that financial institutions exposure to derivatives abroad hit liquidity portfolios managed during the crisis. High exposure of the investment portfolio requires regular reviews.
However, there was criticism that the Capital Market Authority of the offense and the financial institutions risk management guidelines regarding investment portfolios managed towards a crisis, in order to reduce the extent of exposure and thus protect the members' money.
not in the authority instructed in January - February 2020, with identifying the beginning of the crisis to sources, the financial institutions to analyze risk adjusted crisis is emerging or take other actions to reduce the exposure of financial institutions to the risks arising from their activities in preparation Also, during the crisis, the Authority did not instruct the institutional bodies in writing regarding the analysis of risks or the performance of other actions.
Demonstration of small business owners in Tel Aviv, 2020: The loan system designed to help them manage poorly (Photo: Reuven Castro)
State-guaranteed loans - low amounts and poor performance
It was also found that the rate of guarantees given in the State of Israel for the entire case (12% for large businesses, 15% for small and medium-sized businesses and 60% in the increased track) is low compared to the rate of guarantees provided under government assistance programs in most developed countries. The amount of the guarantee on the portfolio had a negative effect on the process of approving loans in the Small and Medium Business Fund.
This negative effect was reflected in the reduction of the willingness of the financing bodies to take risks and in the creation of incentives for actions that are inconsistent with the stated goal of the fund and damage its image, despite its great importance during the crisis.
The auditor also found deficiencies in the management of the lending system through the commercial banks. The report states: In discussions with the Commercial Banks' fund managers in September and October 2020, it was noted that the fact that the engagement agreements did not set measurable criteria for making loans led to regular credit being used by some businesses to reduce their financing costs. .
In terms of processing times for applications for state-guaranteed loans, it was found that the engagement agreement stipulated that the funding bodies would complete the processing of applications within seven business days and led to the expectation of the applicants that this would be done.
However, it was found that the treatment times in all the routes deviated significantly (by an average of about 15 days) from the prescribed treatment times. Following the change in the mechanism for transmitting the information in the funds of the financing bodies, the data were required to be received in a way that needed to be re-typed. This has caused delays in providing the answer to businesses applying for loans.
Employees of the Securities Authority did not receive a stay in the workplace, as was expected of vital employees (illustration) (Photo: ShutterStock)
The Securities Authority has not shown flexibility
The audit found that the Securities Authority does not have enough flexibility in times of crisis to respond rapidly and requested appropriate to fluctuations in the markets that would allow effective monitoring and useful. When reviewing progress, the Authority memorandum of law designed to expand the existing powers of the Authority and enable it to determine the provisions on certain issues independently and fast.
Remind bill published on the Ministry of Justice and my client for the provision of public comments until the day 23/07/2020, but at the date of completion of the audit (December 2020) not before proceeding further.
despite the importance inherent in the operations of the SEC in its capacity as financial regulator, was not expressed in the emergency regulations And has not been determined with respect to the easing authority in the application of the limitation on the maximum number of employees allowed to stay in the workplace. The issue becomes even more valid against the background of the sharp fluctuation in the financial markets, the intensification of the economic crisis and the exclusion of the financial sector in the regulations.
It was found that the definition of the scope of employment in the public sector in an emergency is not carried out in a methodical manner as part of early preparation and in accordance with reference scenarios and needs that arise from the field.
It was also found that the business group whose sales turnover ranges from NIS 200-400 million preferred to submit applications for a loan from the regular track, within the framework of the Small and Medium-Sized Business Fund, over submitting applications to the Large Business Fund.
Because a high rate of applications was canceled in both funds, especially in the large business fund, where at least about 33% of the applications were canceled during most of its months of operation.
Ben Gurion Airport Closed: Businesses in the industries most severely affected were deprived of state-guaranteed loans (Photo: Reuven Castro)
Businesses in the affected industries were discriminated against as well as businesses in the Arab sector
In addition, in the normal course, gaps were found between the Jewish localities and non-Jewish localities in favor of the Jews, both in the rate of approved applications (about 3.1%) and in the rate of the amount approved on average (about 6.7%).
Gaps were also found in the approval rate of the number of applications divided into industries (estimated at 42% - 67%), and according to data from the Tax Authority regarding the three industries that experienced the greatest damage to the turnover (hospitality and food, arts and entertainment and education), approval rates of several applications were documented. Lower than average.
It was also found that many small business applications for credit were rejected compared to other business groups (4% higher refusal rate - 11%), and larger business groups did not receive the full approval required to survive the crisis (the average approved amount was low in -6% - 22% relative to the small business group).
Light points in the report
Despite the harsh criticism, the Comptroller notes positively that the Bank of Israel and the Capital Market Authority acted quickly in publishing regulatory easing and guidelines for the public in favor of expanding the scope of assistance during the crisis (among them: honoring customers who exceed credit limits, Priority in line for telephone answering, insurance freezing and automatic renewal of insurance without collection), while maintaining the balance required to ensure the stability of the regulated entities.
The Comptroller also notes favorably the Accountant General's Division in the Treasury, which worked to raise debt in the amount of NIS 265 billion in 2020, which is required, among other things, to finance government assistance during the Corona crisis.
State Comptroller, Matanyahu Engelman (Photo: Courtesy of those photographed, State Comptroller's Office)
The critic's thing
State Comptroller Matanyahu Engelman
: "In the assistance and credit programs given to businesses, deficiencies were found. The audit includes deficiencies in cooperation between all relevant parties, in defining the vitality of the activities of emergency financial regulators, "
Therefore, it is recommended to examine the proposed assistance mechanisms to increase the efficiency and effectiveness of credit given to businesses, in order to bridge the cash flow gap caused by the crisis and allow businesses to return to function and grow at the end."
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