Leading market analysts covering the banking sector have responded to yesterday's "Globes" exposé that the Bank of Israel is considering tightening mortgage restrictions.
IBI Investment House banking analyst Adi Scop told "Globes", "The Bank of Israel has been considering tightening the restrictions on the banks for a long time, and the decision should be seen in a macroeconomic perspective. The government is increasing the deficit and the Bank of Israel is cutting the interest rate. There is fear of an inflationary bubble in real estate assets. It's as if the Bank of Israel is abetting the rise in prices by cutting the interest rate, which is why it must somehow stop the run on real estate."
Scop adds, "If these measures are implemented, there will be less demand for mortgages, and the main victim will be Mizrahi Tefahot Bank (TASE:MZTF), especially in the growth rate of mortgages. On the other hand, if the Bank of Israel orders an increase in risk capital against mortgages, that affects the banks' motivation to grant mortgages and their value. The important point is that the Bank of Israel is now dealing with the danger of an inflationary real estate bubble."
Leader Capital Markets research department director Alon Glazer says, "Fischer's objective is, on one hand, to prevent a real estate bubble, while not completely halting mortgages on the other. His big fear is a crash such as happened elsewhere in the world. Fischer has taken his foot off the accelerator and sees an increase in the taking of mortgages.
"If he forces the banks to make bigger provisions, obviously we'll see a blow to the banks' business results, especially Mizrahi Tefahot Bank, because we've seen zero provisions for the housing market by the banks in recent years."
Clal Finance chief economist Amir Cohenovich says, "Capping mortgages will not affect home prices, but it will affect the mix of buyers, and the rest will rent. It will not affect the rate of housing starts. The Bank of Israel is not seeking to lower real estate prices, but to preserve the banks' stability. If the central bank has an interest, it would be for prices to continue rising modestly so that the banks won't be hit by a crash. The Bank of Israel is afraid that the low interest rate will prod people to take loans, and that the bank will take the risk of granting large mortgages."
Published by Globes [online], Israel business news - www.globes-online.com - on July 2, 2012
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