Against the background of a sharp rise in credit to businesses in the first half of this year, particularly to the construction and real estate sector, the Bank of Israel Banking Supervision Department has warned the banks about the rise in credit risk in this sector, and is requiring an increase in credit loss provisions.
At stake is not mortgage lending, but credit for construction and real estate, which mainly affects contractors. Total credit extended by Israel's five major banks rose by NIS 66 billion, or 8%, in the first half of this year. The Banking Supervision Department points out that more than half of this rise (54%) is attributable to the construction and real estate sector, credit to which rose by 12% in the period.
The Banking Supervision Department warns that the rise in credit has been accompanied by an increased appetite for credit risk and relaxations in loan terms. "Continuation of the trend is liable to lead to excessive risk that is not consistent with the standards of credit expected from banking corporations and to deterioration in the quality of the credit portfolio," the Department states.
The Banking Supervision Department seeks once a quarter to monitor new credit deals, with the banks marking credit to the construction and real estate sector considered high risk. It is also requiring the bank to review the need for restrictions in order to minimize risk.
Because of the higher level of risk, the Banking Supervision Department is also asking the banks to increase their credit loss provisions. "In calculating the general credit loss provision, the banks should take into account rapid growth in the credit portfolio and relaxations in credit terms. You are required to ensure that the necessary adjustments in calculating the provision are made," the letter to the banks states.
Published by Globes, Israel business news - en.globes.co.il - on August 23, 2021
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