· One of the main steps taken at an early stage of the crisis, was formulating a framework for deferring loan payments that was adopted by the banking system, enabling customers to defer bank loan payments in 3 activity areas—mortgages, consumer credit, and credit to businesses.
· This framework was extended and expanded twice, and on November 30, 2020, an additional framework was formulated, enabling households to defer payments on mortgages and consumer loans for a relatively long period, together with a flexible restructuring manner.
· Together with the formulation of the additional framework for households, the Bank of Israel worked to formulate an additional framework for small and micro businesses[1] (hereinafter, the framework for businesses), in which, in contrast to the previous framework where the banks could use their judgment in approving a deferral request, the current framework allows a deferral without involving the bank’s judgment. Likewise, there is an emphasis placed on borrowers returning to making payments with a lenient payment schedule.
· The current framework, for the benefit of small and micro companies, is in line with the unique characteristics of this group, and following are its main points (the full terms of the framework are detailed in Appendix A of this notice):
o The framework for businesses allows small and micro companies that have been markedly negatively impacted by the crisis and that meet the cumulative conditions[2], to defer, without involving the bank’s judgment, the principal component of the loan. This deferral is expected to lead to a decrease in the monthly payment by more than 70 percent.
o The deferral will be carried out, without involving the bank’s judgment, for a period of up to 1 year (at the customer’s choosing), in loans of up to NIS 500,000, and for a period of up to half a year (at the customer’s choosing) for loans exceeding NIS 500,000.
o The deferral will be made without fees and in accordance with the original interest rate on the loan.
· Between March and November 2020, the banking system approved approximately 181,000 requests that were submitted for deferring loan repayments for small and micro businesses, at a total amount of about NIS 3.5 billion. In recent months, most small and micro businesses returned to repaying the loans that were deferred at the beginning of the crisis. As of the end of October, the loans of about 60,000 businesses are in a payment deferral status, with a credit balance of about NIS 12 billion.
· It should be remembered that deferring repayments is essentially new credit (which is given at the original interest rate terms in the framework) and therefore small and micro businesses should consider this before deciding on a deferral of loan payments.
· The additional framework will go into effect on a date between January 1, 2021 and March 31, 2021.
· At banks in which the date of implementation of the framework in actuality is deferred to a date later than January 1, 2021, (though not later than March 31, 2021), the existing deferral conditions will remain in place, until the date that the new framework goes into effect at each bank.
· This framework presents the minimum terms for deferring loan payments, and each bank may expand it for the good of the small and micro business owners and per their request.
Governor of the Bank of Israel Prof. Amir Yaron said, “The framework for deferring loans was among the first economic steps taken with the outbreak of the crisis, in order to allow someone who was adversely impacted to create a cash-flow bridge and help to get through the period of uncertainty.
Deferring loan payments helped, in real time, businesses whose revenue was adversely impacted by the crisis to reduce their monthly payments. In contrast to previous frameworks, this time the deferral of a significant part of the loan is possible, in tandem with returning to partial payment of the loan and thus renewal of the essential component of ongoing payment in respect of the loan.
The current stage of the framework will continue to assist businesses that have been negatively impacted by the crisis, even toward the process of recovery, acceleration of business activity, and the exit from the crisis. The current goal is to create for the business the optimal conditions for preparing accordingly for the day after the crisis as well. This deferral will enable the businesses to continue to bridge over until they return to financial robustness and enhanced ability to make repayments as the crisis ends.
The additional framework joins a long list of policy steps taken by the Bank of Israel since the beginning of the crisis, alongside the government assistance to businesses, including the government-guaranteed loan funds, which serve as a broad envelope assisting many businesses to deal with the ramifications of the crisis. I would like to again note the readiness of the banking system to assist its customers in these challenging times.”
The Supervisor of Banks, Yair Avidan, said, “Formulating the framework for businesses relies on the principles of the additional framework we formulated for households—that is, focusing the assistance on the same group of small and micro businesses that was markedly adversely impacted by the crisis, providing an option for deferral for a prolonged period of time, and an emphasis on returning borrowers to repaying their loans via a lenient payment schedule.
We see great importance in assisting this sector, which is the economy’s growth driver, and thus we allowed the deferral of the loans for a prolonged period in order to provide some breathing space and an easing in cash flow difficulties, alongside informed and responsible risk management.
I commend the banking system for its enlistment in bringing this framework into being, and the ongoing assistance it grans to small and micro businesses in dealing with the ramifications of the coronavirus crisis.”
Appendix A: Framework for assistance to small and micro businesses
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Loans to small and micro businesses* |
Clarifications |
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Target population |
Loans that are in a status of payment deferral as of December 31, 2020
The business’s sales turnover has declined by at least 25% over 3 months (not necessarily consecutive) during the months March–December 2020, compared with the corresponding period of the previous year |
The terms are cumulative
The manner of checking the decline in sales turnover: At bank’s judgment |
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Bank’s judgment |
Not incorporated** |
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Manner of reducing the monthly charge
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Deferring the principal component of the loan.
This deferral is expected to lead to a reduction in the monthly payment of more than 70%
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The rate of the deferral in actuality is contingent on the specific characteristics of the loan, among other things the composition of the loan, the age of the loan, and the term to final repayment. |
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Interest rate |
The interest rate in the agreement |
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Period of the reduced payment*** |
Loan balance of up to NIS 500,000: up to 12 months
Loan balance exceeding NIS 500,000: up to 6 months |
Customer’s choice |
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Manner of cumulative payment after the period of reduction |
Spreading out the cumulative payment that was reduced over the remaining period of the original loan
OR
Extending the period of the loan in line with the reduced payment period |
In line with the automation abilities of each bank |
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Fees |
No fees |
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*Does not apply to a customer in legal proceedings.
** In a case in which the borrower repays credit to other lenders or increases the credit risk by taking on additional credits, excluding taking loans with government assistance, the bank will be permitted to cease the framework and the borrower will be required to go back to paying the loan regularly.
*** If the borrower asks for a deferral of a number of months less than the maximum period possible for a deferral (that is, less than 6 months or 12 months, as relevant), the request will be carried out subject to the automation capabilities of each bank.
[1] Small business – activity turnover of NIS 10-50 million; micro business – activity turnover of up to NIS 10 million.
[2] The loan is in a deferral status, as of December 31, 2020; sales turnover of the business declined by at least 25 percent over 3 months (not necessarily consecutive) during March-December 2020, relative to the corresponding period of last year.