A last minute change could open up the mortgage market in Israel to competition and allow non-banking entities to offer housing loans at prices lower than those available today. Today, the Knesset Finance Committee will discuss a government bill intended to allow non-banking entities to raise bonds in order to increase their shareholders' equity, and thus enable them to charge lower interest rates on loans.
Just before the Finance Committee session, and following a report in "Globes" yesterday that the original bill contained a restriction that in practice would not have allowed non-banking entities to raise bonds, the bill was changed and the restriction was removed. Under the original wording, only entities with assets of over NIS 5 billion would have been allowed to raise bond finance, of up to NIS 15 billion. The only entities that meet this criterion are the credit card companies Isracard, Max, and CAL, whereas there are twenty non-bank credit companies currently listed on the Tel Aviv Stock Exchange with lower asset values.
The bill now states that a corporation that meets the requirements of the responsible regulator in respect of the ratio between its capital and its liabilities will be allowed to offer bonds, as long as the debt held by the public does not exceed NIS 15 billion.
The ban on non-banking credit companies issuing bonds represented a substantial obstacle to them expanding their market share. Non-banking credit companies cannot raise capital from financial institutions, and have to rely on their shareholders' equity, on bank credit lines, and on the public (for companies active in peer-to-peer loans).
The non-banking credit companies explained that this restriction was the main reason that their loan interest rates were higher than those offered by the banks, starting at 3% annually, and reaching as much as 8%, while the average at the banks is 2-3%. As a result, the total amount of housing credit awarded by the non-banking companies is estimated at NIS 3-4 billion, which compares with some NIS 470 billion in the banks' mortgage portfolios.
The new bill will also remove the provision limiting credit from credit companies to small and mid-size businesses to businesses with annual turnover of up to NIS 400,000.
Published by Globes, Israel business news - en.globes.co.il - on January 25, 2022.
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