The banking system has plunged its credit volume to NIS 24 billion • The rising trend: interest rates will rise over the next month • The collateral provided by the state to the crisis victims' loan fund is significantly smaller than is customary in the world

Since the outbreak of the crisis in Israel, serious claims have been made against the banking system, whereby banks are taking advantage of the situation to market credit on a larger scale while increasing their margins, namely increasing their credit. The Bank of Israel published the results of a special analysis of the credit and interest rate market in the banking system yesterday, and from it emerges a more complex picture that in fact refutes most of these claims.

Economics panel hosted by Eran Bar Tal

Over the past three months, banks' shares (Tel Aviv Banks Index 5) have plunged by 30%, due to the increase in credit risks they take on. The Bank of Israel report shows that since the crisis began in March, the banking system has provided credit to the extent of - NIS 24 billion, a substantial monthly increase of 2.3% (28% in annual terms), compared with a monthly average of only NIS 2 billion in January and February 2020. The increase characterized all five of the largest banks in the system.

Most of the increase in credit was NIS 21 billion for commercial and business borrowers (a monthly increase of 5.6%, about 67% in annual terms). Approximately 30% of the new credit for commercial and business customers was made on the basis of credit facilities utilized by these companies before the crisis. The rapid growth characterized all five of the largest banks in the system.

The report also shows that in the mortgage sector, there was an increase of about NIS 5 billion in balance (after repayments), with the total mortgages granted in March being about NIS 9 billion - the highest in recent decades. However, this credit also includes consumer credit for all A goal, given in an apartment pledge, and based on the relief that the Supervisor of Banks can provide in the provision of the time for the crisis period.

Credit for small businesses fell by NIS 900 million (a monthly decrease of 0.8%, which means a decrease of about 10% in annual terms). This figure does not include the Treasury Guarantee Fund submitted by the Treasury at the end of March. According to the Bank of Israel, the government's proposed NIS 80 billion plan is similar to the GDP of programs put in place by other countries in the world.

However, the collateral provided by the state to the Crisis Victims Loan Fund is significantly lower than is customary in the world. In Israel, only NIS 480 million was provided, which is about 15% of the fund's money, while the UK allocated 60% of the collateral, Spain allocated 80% and Germany allocated 90%. According to the Association of Banks, most countries have allocated 80% and some, for example the US, have even allocated 100% collateral.

The low allocation rolls out the risk to banks, and of course they cannot take it upon themselves, so they will have to reject many applications, especially from businesses that need them specifically.

The level of risk has risen

As a rule, the Bank of Israel states that the average credit prices in the last week of March (the peak of the crisis) remain unchanged compared with the prices in February 2020, which preceded the crisis. The average interest rate on consumer credit in the last week of March fell by about 0.1% to about 4.9%.

However, the Bank of Israel points to a high degree of variability between banks in this area. The average unindexed shekel interest rate on housing credit (mortgages) in the last week of March remained unchanged from February (2.5%).

However, the interest rate in the linked shekel segment rose by 0.2%, to 2.8%. The Bank emphasizes that in fact the loans that peaked during the crisis are mainly those approved before the crisis with a commitment to keep interest rates, so these interest rates do not reflect current prices.

Commercial bank officials say, unquestionably, that interest rates are likely to rise during April. The Bank of Israel, however, has approached banks to absorb some of the risk costs and cut their profits. But if we look at the country's most recent IPO, a particularly successful $ 5 billion offering, of which $ 1 billion for the first time in 100-year history, the Treasury accountant also seems to have agreed to pay much higher interest rates.

These are 2% spreads, compared to 0.7%. If the Accountant was willing to pay it, it was with the understanding that the level of risk had risen and the price should rise accordingly, the same officials said.