Hoping to ease painful constraints on bank lending to building contractors, the Finance Ministry is thinking of giving them more time to pay the state for land.

To advance its policy of preventing housing prices from continuing to climb, the state needs to encourage construction, which has been growing more slowly than demand for years. The question is how to do that.

Treasury officials frown at the concept of the state guaranteeing bank loans to builders, as touted by Housing and Construction Minister Ariel Atias, but the problem is that local banks are nearing the ceiling on lending to contractors.

Under the Bank of Israel's rules, a bank may not extend more than 20% of its total loans portfolio to the real estate sector, including construction of housing and infrastructure.

Several banks, including one of the five largest in the country, has already hit that limit. The central bank warned the bank in question that it was approaching that point, and urged it to reduce the proportion of its loans portfolio earmarked for the building industry. The bank managers shrugged, insisting they want to continue working with the builders with whom they have been doing business for years, but now can't - and they add that they aren't the only ones with this problem.

In practice, the Bank of Israel claims, some 45% of total credit in Israel has been directed to the real estate sector.

Another way the state could stimulate the construction industry is by giving builders more time to pay for land - a solution also proposed by the committee headed by Prof. Manuel Trajtenberg.

It is not unusual for builders to buy land today to build on tomorrow, when "tomorrow" is many years from now.

Under the law, the state may earmark no more than the equivalent of 15% of the state budget to guarantees, and that includes guarantees given to the Israel Electric Corporation, and foreign trade risk insurance coverage. Meanwhile, outstanding credit to the local building industry has reached about NIS 200 billion.

Atias first tried to persuade the Bank of Israel to lift that 20% ceiling, but failed. He then tried his luck at the treasury, but it rejected his idea that the state guarantee construction loans. After meeting several times, however, treasury officials have agreed that help for the sector needs to come from the state budget, not from guarantees, hence the idea of giving builders more time to pay for land.