The Coronavirus Caused a Jump in Riskiest Israeli Household Debt

Those with rating showing chance of near-term default grew during the first wave

Jenya Volinsky
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A man sits in front of closed stores at the Be'er Sheva market amid Israel's second coronavirus lockdown, September 23, 2020.
A man sits in front of closed stores at the Be'er Sheva market amid Israel's second coronavirus lockdown, September 23, 2020.Credit: Eliyahu Hershkovitz
Jenya Volinsky

The first wave of the coronavirus and the resulting lockdown brought a big increase in the number of Israeli households in severe financial crisis, and the second wave threatens to increase the number further, an analysis by CofaceBdi shows.

The survey by CofaceBDi, which provides credit for Israeli consumers, found that in June 124,400 people, or about 2%, of the adult population, saw their rating drop to “low” or “very low” during the first wave of the pandemic.

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The survey looked at consumer credit trends going back to April 2019 and found that indicators had been stable until the pandemic struck last March.

The two ratings, the lowest of the CofaceBdi scale, signal that a borrower is at high risk of not being able to make debt payments sometime over the next year. Even among those with higher credit ratings, some 93,000 Israelis, or 1.5% of the adult population, suffered a rating drop.

The CofaceBdi analysis showed that the number of problematic consumer loans – which is defined by banks as those in arrears or other factors that point to default – had risen over the last year.

Although the latest figures date from June, Tehila Yanai, co-CEO of the firm, said there was no reason to believe they had improved since then.

Tehila Yanai, co-CEO of CofaceBDiCredit: Yehuda Sobol

“The crisis still isn’t over and we don’t know when it will end. In another few months we’ll be able to see the impact,” said Yanai. She noted that the Bank of Israel had been allowing people to suspend principal payments on mortgages, but that freeze will start ending between next month.

“The [end of] the freeze will bring about an increase in monthly repayments at a time of diminishing household income and the expiry of unemployment benefits, and that could cause further defaults. It’s a snowball rolling down a long slope.”

The Bank of Israel said Tuesday that about 12% of all home loan holders have taken advantage of the repayment freeze option as of August, a rate about equal to the broadest measure of unemployment. The number was up from 11% of all mortgages in July, but down from a peak of 25% in May. In normal times, only about 3% of mortgages are in arrears.

The data add to concerns about the growing impact of the pandemic and, more directly, the lockdown and other measures the government is taking. On Tuesday, the cabinet approved an extra 10.5 billion shekels ($3 billion) in aid to help businesses and self-employed workers cope during a new nationwide lockdown

Another factor weighing on the consumer credit rating is the financial pressure on businesses, now being exacerbated by the second lockdown that went into effect last Friday. “If you look at the business end of it, many businesses have closed but there are still many in financial straits and may even file for bankruptcy in the next few months. That will have an impact on consumer credit,” said Yanai.

The rating, which uses the internationally FICO standard, takes into account a household’s debt history, including the number of bank loans, credit cards it has, record of on-time payment, outstanding debt and any cases of court intervention. The data is collected anonymously from the Bank of Israel database.

Despite the worrying credit rating and problematic loan figures, CofaceBdi noted that 75.9% of Israeli households still enjoyed a high credit rating of either “excellent” (39.7%) or “very good” (36.2%) at the end of June. Another 6.9% were rated “less good,” 8.3% “low” and 88% “very low.”

Yanai added that although Israel’s household credit figures have deteriorated in the past year, they’re still good by global comparison. In the United States, even before the onset of the coronavirus, 16% of the population had the lowest ranking, almost double that of Israel.

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