Credit for car purchases declines

New cars Photo: Tamar Matsafi

Most of the decline was in credit from credit card companies, according to Bank of Israel figures.

The volume of credit for purchases of new vehicles was down nearly 1% in the first quarter of 2018, according to figures published today by the Bank of Israel. This is the first time that credit for cars has gone down since the Bank of Israel began publishing this figure two years ago.

The figures show that credit provided by the banks and credit card companies to private customers for buying vehicles totaled NIS 13.6 billion at the end of March, compared with NIS 13.7 billion at the end of 2017. Most of the decline was in credit provided by the credit card companies. Loans for car purchases by the credit card companies were down nearly 5% to NIS 2.13 billion in the first quarter, while credit by the banks for this purpose remained unchanged at NIS 11.5 billion, the same as at the end of 2017. The drop in credit in the first quarter follows a period of growth in this sector; credit for auto purchases jumped 11% in 2017.

The Bank of Israel published guidelines a year ago aimed at cooling off activity in the sector. The Bank of Israel Banking Supervision Department warned that the level of risk in this activity had increased and doubted the banks' ability to repossess attached vehicles. The Banking Department instructed the banks to calculate the value of a vehicle as collateral at only 60% of the vehicle's list price. In addition, its value as collateral will reduce to zero over five years.

It appears that the banks have gotten the message and have halted the increase in this activity. The same trend extends to the credit card companies, whose loans for vehicle purchases have low profit margins because they include collateral and therefore ostensibly incur less risk. Some of the companies preferred concentrating on consumer loans at the expense of growth in credit for auto purchases.

Loans for vehicle purchases are considered low-risk because they come with collateral attached - the purchased vehicle. Some of the players have marked this area as a target for growth, which has eroded prices down to an interest rate of prime plus 0.25-0.5%, in other words only 2% interest. The level of spreads rose last year, but is still regarded as low in comparison with ordinary consumer credit.

Published by Globes [online], Israel business news - www.globes-online.com - on July 5, 2018

© Copyright of Globes Publisher Itonut (1983) Ltd. 2018

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New cars Photo: Tamar Matsafi
New cars Photo: Tamar Matsafi
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