Household Debt Rose 6.9% Last Year, Led by Home Loans

Banks putting more emphasis on consumer credit as business lending grows tougher.

Ofer Vaknin

Israeli household debt jumped 6.9% last year to 438 billion shekels ($111 billion) at the end of December, mostly due to people taking out mortgages, the Bank of Israel said Wednesday.

Home loans accounted for 15 billion shekels of the 28.4 billion shekel increase in household debt last year.

Households took out 29.3 billion shekels in new loans last year, but the decline in the consumer price index trimmed 900 million shekels off the amount.

It was the third year of sharp growth in mortgage debt, which rose 5.2% in 2014, to 303 billion shekels, as a housing shortage and skyrocketing home prices have forced buyers to borrow more. Home prices rose 5% last year, although in many cities the pace was much higher.

The Bank of Israel has sought to contain the growth of mortgages out of concern that a sudden reversal of home prices or a recession would saddle Israel’s banks with bad debt, much as happened in the United States seven years ago. While the measures have reduced the risk profile of the newest loans, they have done little to constrain demand.

In 2014, there were about 51.5 billion shekels in new mortgages taken out, similar to the total for 2013. But, the central bank noted, last month saw a decline in new mortgages, to about NIS 4.6 billion.

Meanwhile, other consumer credit grew even faster last year, the Bank of Israel said. Total non-mortgage debt owed by households grew 11%, or by 13 billion shekels, representing about 30% of total household debt, it said.

Israeli banks have been lending more to consumers as opportunities for business lending have been restricted by regulations and competition from the bond market.

The Bank of Jerusalem said Wednesday its fourth-quarter net profit rose 9.2%, to 66 million shekels, thanks to a 22% increase in consumer lending — to 765 million shekels. “2014 was the year we harvested the fruits of our strategic plan,” said CEO Uriel Paz.

Business debt grew by only 2.1% last year, to 816 billion shekels, in part due to the depreciation of the shekel, which increased the value of foreign-currency loans.

Nevertheless, Israel’s banks face stiff competition from other lenders, as the Bank of Israel figures showed.

While 86% of non-mortgage consumer debt is held by banks, non-bank lenders have been increasing their lending faster. Institutional investors saw household loans grow 30.4% last year while credit card companies increased theirs by 14.9%.