The deteriorating situation of some building contractors because of the slowdown in sales and the ongoing war is starting to manifest itself in the reports of some providers of credit to the construction industry, who are warning of the "realization of risk" in the industry.
Thus the Bank of Jerusalem states in its 2025 report: "The uncertainty because of the war and the growth in the debt burden as a result of the rise in interest rates in the past few years have raised the potential of risk in credit to real estate. As a result, the bank has significantly increased its provisions for this sector, from a ratio of provisions to credit balance of 0.13% before the war to 1.06% at the reporting date."
The bank states that "there has occurred a certain rise in the risk profile of the housing loans portfolio, evident in a rise in the rates of arrears and the rate of failures." It also states: "In the past year, because of the prolonged war, the high interest rate environment, and the steps taken by the Bank of Israel to reduce the widespread phenomenon of developers’ sales promotions, we have seen changes in the real estate market in the shape of a sharp fall in apartment sales by contractors and a fall in apartment prices, particularly in the center of the country. Alongside this, there has been a certain rise in the sector’s risk profile."
Home sales fell by 25% last year, to about 85,000 units, a twenty-year low.
"The market is not behaving uniformly"
"We chose to focus on describing the situation in real estate because that is a relatively large area of activity for us. We are actively financing the construction of some 11,000 housing units in 245 projects," says Bank of Jerusalem CEO Yair Kaplan. "We wanted to highlight the fact that the market is not behaving uniformly. If at one time the areas of high demand for homes were in Tel Aviv, Ramat Gan, and Givatayim, and the industry experienced difficulties in the periphery, today it’s the other way around. In Tel Aviv, in what were considered the more prestigious areas of the city (in the old north, around Ibn Gabirol Street to south of the Yarkon), it’s hard to sell apartments, while in the periphery sales are actually better."
Non-bank finance company Peninsula, headed by Jacky Cohen and controlled by investment house Meitav, also warns about the situation in the real estate market. "In the past few months we have seen signs of the realization of risk factors in the real estate sector, both in the company’s corporate credit activity and, to a lesser extent, in financing for construction projects… which have led to substantial erosion of profitability among real estate developers, contractors, and other players in the sector, and to significant delays in the completion of projects," it states.
"The continuing erosion of the profits of developers and contractors has led to cash flow difficulties at companies in the sector, and even to insolvencies. There has been a rise in the rate of applications for insolvency filed by real estate developers and in the rate of returned checks," that is to say loans that developers are not managing to repay.
As a result, Peninsula too has raised its credit loss provision expense, by 20% to NIS 26.2 million in 2025. In the fourth quarter alone the company recorded credit losses of NIS 11.6 million, more than double the amount in the corresponding quarter of 2024.
Banks not concerned
On the other hand, Israel’s two largest banks, Leumi and Hapoalim, are showing no signs of concern. They released financial statements last week showing record profits and no jump in credit loss provisions. Leumi’s rate of provisions for credit losses was 0.09% of the average balance of credit to the public last year, down from 0.16% the year before. This was the result of a decrease in the general provision, and net recoveries on specific provisions.
Bank Hapoalim increased its credit loss provision expense to 0.27% of the credit balance, 87% more than in the previous year when it was 0.16%. The bank stressed that this was a conservative step, applying to the general provision rather than to specific loans.
The bank stated that it had adopted "a prudent approach to management of credit risks, with an emphasis on increasing the general provision in the light of the growth in the credit portfolio and maintenance of a cushion given the geopolitical and economic uncertainty."
"It’s true that there has been a significant decline in sales of new homes," a source at one of the large banks said, "but at the moment there isn’t anything that disturbs us. If the slowdown in sales continues for a long time, that will be liable to result in a rise in provisions. But at the moment unemployment is very low, we entered the current military campaign with a strong economy, and it can cautiously be estimated that we will emerge from it in a better position."
Another senior banker says that the big banks have a relatively large capacity to absorb a drop in prices in the real estate sector, and that even if the prices of homes under construction fall by as much as 25%, the big banks will be able to surmount the crisis. In that event, he says, Leumi will not have to make provisions for credit losses at all, while at Bank Hapoalim it will be a matter of small write-downs in relation to a NIS 2.2 billion activity.
"The non-bank players are exposed"
According to this source there are also indications of a recovery in sales, "especially in Jerusalem and the Krayot", but he admits that "we are seeing a crisis emerge among small urban renewal developers, because the bureaucracy is killing them. The ones exposed to them are mainly the non-bank players."
Moty Citrin, VP and head of financial institutions and structure finance at rating agency Midroog (a subsidiary of Moody’s) says that in recent months "there has been a rise in the incidence of insolvency among contractors and infrastructure companies," but that a distinction should be made between the major banks and smaller entities. "A large contractor has ways of avoiding this deterioration, because he has deeper pockets."
For the time being, investors on the Tel Aviv Stock Exchange are choosing to look ahead optimistically. The Tel Aviv Construction Index, which covers the largest construction companies such as Dimri, Israel Canada, Aura, and Azorim, shot up by 12.2% last week, after the start of hostilities with Iran. This was more than double the rise in the flagship Tel Aviv 35 Index.
For the year to date, the Tel Aviv Construction Index has risen by 20%, which is similar to the rise in the Tel Aviv 35 Index. "The Tel Aviv Construction Index started to rise after two interest rate cuts. That’s what investors are watching," a source at one of the banks said.
Published by Globes, Israel business news - en.globes.co.il - on March 10, 2026.
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