"Up to the end of 2023, Israeli banks approved postponements in repayments of nearly NIS 6 billion in more than 300,000 loans," The Bank of Israel writes in its Financial Stability Report for the second half of 2023, as it warns households to think carefully before taking on additional debt. The Bank of Israel notes that about 30% of these loans are for households and businesses who postponed repayments as part of the program for those affected directly by the way by being evacuated from their homes, having family members murdered, or army reservists called up with emergency notices.
The Bank of Israel explains, "From a macroeconomic stability point of view, postponing debt repayments allows households and businesses to avoid reducing consumption or activities and reducing the likelihood of entering insolvency. The war is expected to make it difficult for households to service debt due to a fall in income from work (on average)."
In this context, the Bank of Israel recalled the plan for postponing loan repayments adopted by the banking system, in which households directly affected by the terror attack on October 7 or the subsequent war can postpone loan repayments for three months, interest-free and free of fees. As of the end of 2023, repayments were postponed for 75,000 loans (including mortgages and other loans), while repayments for 150,000 other household loans were postponed, outside of the plan. Households postponed repayments worth about NIS 2 billion.
Warning about households taking additional loans
The Bank of Israel sent a warning to households about taking additional credit during this period. "The extent of the households' ability to service the debt is reflected in the proportion of the credit balance for which there is arrears in payments. Even before the war, there was a slight increase in credit in arrears (due to the increase in interest rates that made loan repayments more expensive by hundreds of shekels), and since the beginning of the war this proportion of the total credit rose somewhat, mainly in non-housing credit. In addition, the rate of credit defined as "monitored credit," - credit for which there is concern about the borrower's ability to repay - of the total housing and non-housing credit stands at 1.2% and 2%, respectively. It is worth noting that despite the changes, these are low risk credit rates. The credit balance from the credit card companies is also decreasing in quality: the rate of non-accrual credit and credit in arrears of 90 days or more rose sharply in the first two quarters of the year, and with it the companies' expenses for credit losses.
"In any case, households whose incomes are affected are higher than the extent of the debt service (and are not the result of being drafted into the reserves, days for which the state pays), are expected to reduce their consumption, take additional credit or use other liquid sources. Taking additional credit during this period may increase the vulnerability of households, especially as long as the economic recovery process from the war continues and is prolonged and while interest rates remain at a relatively high level."
Published by Globes, Israel business news - en.globes.co.il - on January 31, 2024.
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