Israeli Central Bank Concerned About Household Lending

But a Bank of Israel report says the system is in good shape relative to global peers.

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A branch of Bank Hapoalim.
A branch of Bank Hapoalim. Credit: Tomer Appelbaum

Israeli banks have made a big switch in their lending away from big business and toward consumers, especially mortgages, the Bank of Israel said in its annual banking reporting released Monday.

“Credit to big lenders has fallen considerably, a process that has reduced concentration in the banks’ lending portfolios, while lending to households and small businesses has grown,” the bank said.

But it still expressed concerns about the trend. “The increase in lending to households (both for housing and non-housing purposes) and credit to the building and real estate sector – and the linkage between them – has increased the risks to the banking system,” it said.

Household lending has grown sharply in recent years, encouraged by low interest rates, soaring home prices and increased consumer spending. In 2015 alone, household lending rose 9% to 433 billion shekels ($112 billion), the Bank of Israel said. Two-thirds of that were home loans.

Household credit rose in the last decade to 38% of gross domestic product, 10 percentage points higher than a decade ago.

Despite its concerns, the central bank said the banking system remained sound.

“Cautious management by the banks and the bank supervisors have enabled banks in Israel to remain stable in recent years in the face of the financial storms that gripped the world and led many banks in Europe and the United States to difficulties and even collapse,” it said.

Meanwhile, indexes of bank stability show that Israeli lenders are less exposed to risk than most global banks.

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