Sources inform ''Globes'' that Bank of Israel has published a circular, "Financial reporting n employee rights". The circular, part of the introduction of International Financial Reporting Standards (IFRS), is due to take effect in the financial reports for the first quarter of 2011, which the banks are about to publish. The circular covers "measuring expected benefits beyond contractual terms", and has been a bone of contention between the Bank of Israel and the banks.
The circular states that banks must review if they expect, based on experience, to pay employee severance compensation under voluntary or involuntary retirement plans that will exceed projected commitments (severance compensation of one month's pay for each year of employment).
For years, the banks paid employees severance compensation at more than double, or even triple, the legal minimum. The banks must now make a retroactive provision for these payments.
The new rules will reduce the banks' aggregate shareholders' equity by NIS 1-1.5 billion because it applies retroactively back to January 2010.
Supervisor of Banks David Zaken is determined to apply the circular over the banks' objections. A Bank of Israel source said, "The circular will regularize obligations toward employees."
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