| The Supervisor of Banks today published draft guidelines for consultation regarding the development of housing loan risks, imposing additional provisions for housing loans with high a loan-to-value ratio. |
| The guidelines were formulated in light of macroeconomic and industry processes causing housing price increases in many areas in Israel over and above the rise in the standard of living and households' income. These processes are also expressed in an increase in the number of loans and in the average size of loans, and are likely to result in continued erosion of the quality of housing credit portfolios and increased risk in the total portfolio. |
| The new guidelines require banking corporations to examine their housing credit risk management, and to make additional provisions for housing loans with high loan-to-value ratios. The guidelines require banking corporations to re-examine the risks in their current credit portfolios, and also their mortgage policy, to ensure that it does not result in their taking larger than desired risks. The examination should relate to various aspects of housing credit, and should include, among other things, stress tests performed at different levels of severity, in order to examine the possible impairment resulting from the erosion of the ratio of credit to the value of the mortgaged asset and from changes in borrowers' repayment ability. |
| The guidelines also require banking corporations to examine the need to increase their loan-loss provisions because of the increase in housing loan risks, and should hold an additional provision of not less than 0.75 percent for outstanding housing loans granted since April 1, 2010 in which the loan-to-value ratio when the credit was granted (the ratio of the debt to the value of the mortgaged asset) is greater than 60 percent. This additional provision will become effective from the financial statements to June 30, 2010. |
| The Banking Supervision Department intends to continue to monitor risks in the industry and examine the need to adopt additional measures that may become necessary. |