Mizrahi CEO: Rise in Mortgage Lending Near Limit

Bank can't predict whether prices will rise or fail; will look for new sources of growth, CEO says.

The growth in mortgage lending is reaching its limit, Eldad Fresher, CEO of Mizrahi Tefahot Bank, Israel’s biggest maker of home loans warned yesterday, saying his bank would begin looking for new sources of growth.

“We believe the housing market is at a relatively high level. We can’t predict whether prices will rise or fall, but we believe that the size of the mortgage market, as we know it, is near its limit,” he told a press conference to present the bank’s 2013 financial report. “We are looking for new channels for growth.”

His remarks came as minutes released by the Bank of Israel of last month’s meeting of its Monetary Committee showed officials were optimistic enough about the mortgage market trends to vote to lower the base lending rate for March by a quarter of a percentage point to 0.75%, it lowest since 2009. They pointed to tighter rules for granting mortgages as well as an increase in home construction.

“The measures adopted by the Supervisor of Banks were effective - they reduced the risk characteristics of new mortgages,” the minutes said. “The number of building completions increased markedly and there is a large stock of homes available for sale. “

Home prices shot up 8.1% last year as buyers tried to lock in home equity out of concern that the government would not be able to contain the rise. Meanwhile, the value of new home loans climbed 10.9% to a record 51.7 billion shekels ($14.9 billion).

Fresher warned that low interest rates have brought with them changes in investment patterns, as bank deposits have shrunk in favor of real estate investment. “This is the fifth [consecutive] year we are in an environment of negative real interest rates. This is a situation forced on us from the outside, but it has risks we tend to ignore,” he said.

Since the start of 2009, there has been an incredible rise in housing prices, but Fresher urged the public to put the increase in perspective. “Someone who bought the TA-25 Index made a better investment and whoever bought Mizrahi Tefahot shares made and even better investment,” said Fresher.

Fresher said he expected the mortgage business to remain the foundation for the bank’s operations, but it needed to develop other sources of income.

“We intend on adopting a relatively aggressive plan to enter the Arab sector,” he said, and the bank can take a bigger market share. He said the bank plans on expanding its business credit to the “middle market” of medium sized firms in 2014 and 2015.

Daniel Bar-On