BoI eases credit for PPP infrastructure projects

Shlomo Hamelech station on TA Light Rail Red Line under construction  photo: Amiram Barkat

The Banking Supervision Department has announced that it will allow banks to provide more credit for projects seen as critically important for the economy.

The Bank of Israel Banking Supervision Department has announced that it will allow Israel's banks to provide more credit for public-private partnership (PPP) infrastructure projects. Banks can now provide additional credit amounting to 4% of their credit portfolio, beyond the ceiling of 20% of total bank credit currently applicable to construction and real estate. The Banking Supervision Department believes that easing the restriction will enable the banks to increase their credit for national infrastructure by NIS 25 billion.

Under the Banking Supervision Department's regulations, the banking system is restricted in granting credit for infrastructure projects to one fifth of the bank's credit portfolio because such projects are treated as part of the construction industry. The Ministry of Finance Accountant General recently asked the Supervisor of Banks to consider making it easier for the banks to take part in infrastructure financing, given the large number of infrastructure projects planned in the coming years.

Many costly national infrastructure projects are planned in the near future, such as the Tel Aviv light rail project, expansion of the Jerusalem light rail, private power plants, new desalination facilities, and moving IDF bases (such as the computer center) to the Negev. These projects amount to over NIS 20 billion. The Accountant General's request is designed to facilitate a series of such important infrastructure projects.

Analysis carried out by the Banking Supervision Department with assistance from the Bank of Israel Research department shows that the risk in providing credit for PPP infrastructure projects is lower than for ordinary projects, given the government's participation in the project and the existence of government guarantees. It was therefore decided to grant the Accountant General's request by increasing the banks' ability to allocate credit for these projects.

The guideline is currently still a draft. It will become a valid final regulation after it is discussed by the advisory committee and comments from the public are received.

The banking system and the Association of Contractors and Buildings in Israel (ACBI) welcomed the measure today, "which will release more credit for infrastructure projects," Bank Leumi first EVP and head of corporate division Shmulik Arbel told "Globes." "We welcome the Bank of Israel's measure, which will make it possible to organize and finance more infrastructure projects in the coming years. These projects are of national importance; their execution is critically important for the economy," he added.

ACBI president Raul Srugo also praised the step, saying "This extremely important decision sets a precedent. The banks are under credit restrictions. Two or three years ago, Bank Hapoalim and Bank Leumi were right at the limit, and were unable to continue financing projects."

ACBI and the banks warn, however, that the ideal situation is to create complete separation between the infrastructure and construction sectors.

Published by Globes, Israel business news - - on November 26, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

Shlomo Hamelech station on TA Light Rail Red Line under construction  photo: Amiram Barkat
Shlomo Hamelech station on TA Light Rail Red Line under construction photo: Amiram Barkat
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