After having published instructions to increase provision and improve transparency to customers, the Bank of Israel is going on to deal with the sharp increase in household credit, this time through more extensive reporting to the central bank. The Bank of Israel Banking Supervision Department issued an order in the past few days instructing the banks that starting in June 2016, they will have to submit a detailed quarterly report on their credit risk in the household sector according to the borrowers' level of risk.
"In view of the rise in credit risk for private individuals in the banking system in recent years, it has become necessary to expand the information required in this context. A reporting order is therefore being added a quarterly report on credit risks for private individuals," the Bank of Israel said in its explanation of the background to its decision.
In the framework of the report, the banks will have to deliver a quarterly report within a week of the publication of their financing reports listing the extent of their exposure to private individuals. The report will include the volume of exposure according to the type of borrower. The borrowers will be divided into five groups according to their financial strength, composed of their income and financial assets. For example, group A will include accounts with less than NIS 5,000 in monthly income and less than NIS 10,000 in financial assets, while group E will include accounts with income of over NIS 20,000 and more than NIS 500,000 in financial assets.
The banks will have to report a series of more than 20 figures for each of these groups, including how many accounts are in excess of the overdraft limit, how many loans there are for the purchase of a car for which the car has been encumbered (in view of the increase in these loans), the volume of accounts without no regular income, how much credit is more than 90 days in arrears, and how many unused current account lines of credit there are.
It appears that the division into groups is designed to enable the Banking Supervision Department, headed by Supervisor David Zaken, to get an impression of how much the risk in loans to households has increased. As of now, the banks are reporting general figures about the extent of their loans, without dividing them into groups according to the borrowers' financial situation. The more complete picture that the Bank of Israel expects to see is designed to help them obtain warning about the risk of the banks' loan portfolio, and to publish restrictions if necessary, as they did in the mortgage sector.
The banks have substantially expanded their credit to households in recent years. Over the past three years, this credit portfolio (excluding mortgages) at the five largest banks has grown by over 20% to nearly NIS 110 billion. This steep increase did not escape the attention of Zaken, who has already published two instructions on the matter in the past years.
The first order instructed the banks to increase their provisions for credit losses in these loans by a total of NIS 400 million, which in effect increases their reserve funds in the event of loan defaults. In addition, three weeks ago, the Banking Supervision Department issued a series of instructions about determining policy in the granting and marketing of loans. The banks described this demand as inflexible and tough.
Published by Globes [online], Israel business news - www.globes-online.com - on July 13, 2015
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