• Due to the coronavirus pandemic and its impact on the global and domestic economies in general, and on bank customers in particular, households and business owners are encountering economic difficulties, which are reflected in, among other things, a decline in income that leads to difficulty in repaying loans that they took out prior to the pandemic.

  • Several days after the scope of the pandemic and its effects became clear, and in the interest of assisting households and businesses in dealing with the drastic change imposed on them, the banking system began to permit the deferral of loan repayments, with the Banking Supervision Department’s encouragement, among things by clarifications and accounting leniencies. From the beginning of the crisis through the end of April, the banks deferred loans for approximately 450,000 customers in all activity segments, at a total amount of NIS 5.2 billion, unprecedented scopes.

  •  In order to continue to assist bank customers to get through the crisis, while managing risks conscientiously and responsibly, and in order to create certainty for the public regarding the possibility of deferring payments, a uniform framework for deferring payments was formulated and adopted by all the banks.

  • Global experience indicates that in advanced economies that are comparable to Israel (in terms of credit rating), such as Belgium, France, Canada, New Zealand, Australia, the UK, Singapore, Ireland, and the Netherlands, the measures were not adopted across the board for all the credit sectors in the economy but were adjusted in each country for its needs and economic status. In addition, the initiatives for deferring payments, in all those countries, were adopted as a voluntary framework vis-à-vis the credit providers, similar to the framework formulated in Israel and presented below.

Governor of the Bank of Israel, Prof. Amir Yaron, said, “The economic crisis has led to a broad adverse impact on many households and businesses. The accessibility of businesses and households to credit is a critical component in the economy’s ability to get through the crisis, and the deferral of loan repayments is an effective mechanism for granting cash flow assistance to those who require it. I am happy with the framework that was adopted by the banking system for deferring loan repayments. The framework, with similar characteristics to others carried out since the outbreak of the of the crisis in other advanced economies, will provide certainty regarding the options available to customers in deferring loan repayments, and will be added to the credit that the banks have supplied to date and the assistance package provided by the government for the benefit of households and businesses that have been adversely impacted by the crisis.”

Supervisor of Banks Dr. Hedva Ber said, “Throughout the crisis the Bank of Israel has been taking a range of steps in order to assist bank customers and to make it easier for them to deal with the financial repercussions of the coronavirus crisis. The framework that was adopted for deferring payments, for customers who request it, provides a significant response for households and small businesses and assists them with an easing in cash flows, while maintaining banks’ informed management of the risks. I commend the banking system’s enlisting in the carrying out of the framework that was formulated, the goal of which is to assist customers in this complicated time.

Due to the coronavirus pandemic and its impact on the global and domestic economies in general, and on bank customers in particular, many small business owners and households are encountering economic difficulties reflected in, among other things, a marked decline in income, and thus to difficulty in repaying loans that they took out prior to the pandemic.

There are 2 types of assistance required for those negatively impacted by the crisis: households and businesses that just before the crisis were meeting their loan repayments and for whom the negative impact on their income is expected to be short term, can get through the crisis by cash flow assistance in the form of credit or the deferral of loan repayments. To the extent that the negative impact on income is long term, or that the business is at high risk and there is a doubt regarding its ability to meet the loan repayments for a long time, there is no place to increase the credit, and the assistance can be given only in the form of budget assistance by the government, or by credit provided with large government guarantees. This is particularly the case in high risk industries.

As such, and in order to assist bank customers who require cash flow assistance in order to get through the crisis, and after studying the global experience in this area, a uniform framework for deferring loan repayments was formulated, which is expected to assist with cash flow difficulties of households and small businesses affected by the coronavirus crisis and as a complement to tools the government has provided and is expected to provide.

The framework refers to the deferral of loan repayments in 3 activity segments (mortgages, consumer credit, and business credit), and it enables households and small business owners to defer their loan payments in the following manner:

 

  • Mortgages: The deferral is for a period of 6 months, without a limitation on the amount of the loan balance.
  • Consumer loans: the deferral is for a period of 3 months for loans with an outstanding balance of up to NIS 100,000. In addition, there is an option (in accordance with the bank’s judgment) for an additional 3-month deferral for those loans.
  •  Loans to small businesses: The loan deferral is granted unrelated to the amount of the loan balance, for a period of up to 6 months, in accordance with the bank’s judgment.
  • Fees: No fees will be charged in respect of the loan repayment deferrals.
  •  Interest rate: The deferred payments will bear an interest rate that does not exceed the interest rate in the loan contract. It is important to emphasize that deferring the repayment of the loan is like taking out a new loan, at the amount of the deferred balance.
  • Manner of spreading out the loan payments: For mortgages, the payments will be spread over the entire remaining period of the loan, and in consumer credit and business credit, in general, the payments will be deferred until the end of the loan period.
  • ​ Period for submitting a deferral request: A request to defer loan repayments may be submitted to a bank in accordance with this framework until July 31, 2020.

 

It should be clarified that the framework that was formulated presents the minimum terms for deferring loan repayments, and each bank may expand it for its customers’ benefit and at their request.

 

It is emphasized that deferring the loan repayments involves interest over the period of the deferral. Thus, prior to deciding on a loan repayment deferral, it is important that the customer examines the ramifications of the deferral, including the economic cost of the deferral (from the aspects of the interest charged, the amount of the monthly charge after the deferral, etc.) in order to make an informed decision.

 

Table: The framework for deferring loan repayments

 

 

Customer group

Deferral period

Maximum interest rate

How payments are spread out

Mortgages

All borrowers*

6 months

The contracted interest rate

Distributed over the loan period

Consumer credit up to NIS 100,000**

A borrower without arrears, as of February 28, 2020

3 months. In addition, an option for extension of 6 months, in line with the bank’s judgment

The contracted interest rate

Payments added at the end of the loan period***

Business credit

A business with annual turnover of up to NIS 25 million, which was negatively impacted by the crisis.

The business’s loans have been repaid regularly up to Feb. 28. 2020 during the year preceding this date, and it is expected that it will get through the crisis and be able to meet the loan repayment after the crisis.

Up to 6 months, in line with the bank’s judgment

The contracted interest rate

Payments added at the end of the loan period***

The deferral will not incur a fee.

 

Clarifications:

In Israel, the framework that was adopted refers to 3 groups of customers/3 types of credit—consumer, mortgages, and small businesses, while around the world some of the arrangements that were formulated only referred to 1 group. In addition, around the world different conditions were set for each type of deferral (as presented in the Appendix below).

*A customer who was in arrears before February 28, 2020, will be able to defer up to period that does not exceed 180 days from the day the arrears began.

*Not including a borrower who is in a legal proceeding.

**Not including loans in commercial collaboration with a third party.

***The manner of spreading out the loan is subject to technical limitations derived from the bank’s computer system. Should it be necessary, alternative solutions for the distribution mechanism will be suggested.

 

Data on deferrals made to date in the banking system in Israel

Several days after the scope of the pandemic and its effects became clear, and in the interest of assisting households and businesses in dealing with the drastic change imposed on them, which incorporates dramatic economic ramifications, the Bank of Israel, similar to central banks worldwide, adopted accounting rules that enables the banks to spread out or to defer loans without those loans being classified as problematic debt. As such, since the outbreak of the crisis the banking system has deferred loan repayments at unprecedented scopes in all the activity segments, as detailed below:

 

In March–April 2020, the banking system approved 448,676 requests that were submitted for loan deferrals, at a total amount of NIS 5.2 billion. The credit balance for which the deferral was requested is NIS 135 billion, which makes up 12.8 percent of the total credit portfolio of the banking system.

 

To carry out the numerous deferrals in such a short period of time, the banks prepared, even at the height of the coronavirus crisis and with the labor force limitations that derived from it, to provide a rapid response to the hundreds of thousands of customers who contacted them to request a deferral. Thus, for example, in the mortgages segment, the banks deferred payments on loans representing 21.6 percent of the total mortgage portfolio.

Credit repayment deferrals beginning from March 1, 2020 (NIS billion)

 

Consumer

Housing

Small business

Business

Commercial

Total

Number of customers for whom there was a deferral

205,910

130,213

107,402

5,151

448,676

Balance of payments actually deferred

0.8

1.8

1.7

1.0

5.2

Balance of credit in respect of which the payments were deferred

10.3

87.0

19.0

18.9

135.2

Share of total credit portfolio

7.1%

21.6%

18.2%

4.7%

12.8%

 

Steps taken in various countries worldwide:

In many countries, various plans for deferring credit repayments have been carried out as part of the broad plans to support the economy as a result of the coronavirus crisis. These steps are complementary steps to the providing of government guarantees to credit suppliers for the benefit of providing new credit, primarily to small and medium enterprises, and additional monetary steps, the goal of which is to support economic activity and to provide credit. The various types of plans in different countries are differentiated by the type of mechanism and the criteria and threshold conditions that grant eligibility to participation in the program.

 

In advanced economies that are comparable to Israel, in terms of credit rating, such as Belgium, France, Canada, New Zealand, Australia, the UK, Singapore, Ireland, and the Netherlands, the initiatives for deferring payments were adopted as a voluntary framework vis-à-vis the credit providers. Most of the countries that adopted a process of legislation for deferring payments are developing economies with a credit rating lower than Israel’s. Note that in advanced economies in which there was such legislation, it was designated mainly for government plans for credit, such as in the US (mortgages secured by the government) or Canada (student loan plans).

While the said framework that was adopted in Israel by the banking system refers to 3 activity segments and includes minimum thresholds, in most of the plans around the world, various covenants were established, which limit the borrower groups eligible for payment deferrals (as detailed by country in the attached Appendix). For example:

 

  •  Businesses with limited activities, and workers who have been laid off or placed on unpaid leave
  • Borrowers who repaid their loans on a regular basis until the beginning of the crisis and not to borrowers who were facing difficulties before that.
  • The borrower’s available financial assets do not exceed a certain limit.
  • ​The borrower’s income was considerably negatively impacted

 

Appendix A—Table comparing selected countries on the issue of deferring loan repayments

 

Type of credit and length of period of deferral

Covenants limiting the group of borrowers eligible for the deferral of the payment

Country

Housing loans

Consumer credit

Small & medium business

Length of period of deferral

Contingent on adverse impact on borrower’s income

Contingent on regular repayment of loans prior to the crisis

Additional covenants

Israel

V

V

V

Up to 6 months

Only for business

Only for business

A company with annual turnover of NIS 25 million

UK[1]

V

V

 

3 months

V

V

The request can be denied assuming the deferral doesn’t serve the customer’s best interest

Italy[2]

 

 

V

Until Sept. 30, 2020

V

V

There are gov’t guarantees of 33% for 18 months after the end of the deferral

Belgium[3]

V

 

V

Up to 6 months

V

V

Housing loans- borrower’s total financial assets must be less than €25,000. The home for which they request the deferral is their only home.

Australia[4]

 

 

V

Up to 6 months

V

V

Total debts of the firm must be less than $10 million to all credit providers.

New Zealand[5]

V

 

V

Up to 6 months

V

 

 

Singapore[6]

V

V

V

Until the end of 2020

V

V

Adverse impact on consumer credit income. Businesses – only fully secured loans.

Lithuania[7]

V

V

V

6 months

V

V

 

Spain[8]

V

 

V

3 months

V

 

Limited to requests in which the family unit’s income is lower than the law’s threshold

US[9]

 

 

V

6 months

V

V

Only gov’t-guaranteed loans

Canada[10]

V

V

 

6 months

Bank’s judgment

Bank’s judgment

Consumer – student loans – deferral for all

Germany[11]

 

V

V

3 months with option to extend

V

 

Businesses – intended only for micro companies

Netherlands[12]

V

 

V

Up to 6 months

Bank’s judgment

Bank’s judgment

Total debts of the company must be less than €2.5 million to all credit providers

Portugal[13]

V

 

V

Up to Sept. 30, 2020

V

V

Borrower must not have debts to tax authority and social security

Ireland[14]

V

V

V

Up to 6 months

V

 

 

Netherlands[15]

 

 

V

Up to 6 months

V

Bank’s judgment

 

France[16]

 

 

V

Up to 6 months

Bank’s judgment

Bank’s judgment

 

 


[1] https://www.gov.uk/government/news/payment-holidays-offered-to-help-to-buy-homeowners-affected-by-covid-19, https://www.fca.org.uk/firms/mortgages-coronavirus-guidance-firms, https://www.fca.org.uk/consumers/coronavirus-information-personal-loans-credit-cards-overdrafts

[2] https://ec.europa.eu/commission/presscorner/detail/en/IP_20_530, http://www.mef.gov.it/en/inevidenza/Protect-health-support-the-economy-preserve-employment-levels-and-incomes-00001/

[3]  https://www.nbb.be/en/financial-oversight/prudential-supervision/areas-responsibility/credit-institutions/qas-moratorium

[4] https://www.ausbanking.org.au/covid-19/the-business-relief-package/

[5] https://www.nzba.org.nz/consumer-information/covid-19/banking-industry-response-to-covid-19/

[6] https://www.mas.gov.sg/-/media/MAS/News/Media-Releases/2020/Annex-on-MAS-and-Financial-Industry-Support-Measures-31-Mar.pdf

[7] https://www.lba.lt/file/manual/Banku_Klientams/Laikinas%20kredito%20isipareigojimu%20moratoriumas%20fiziniams%20asmenims.pdf

[8] https://www.boe.es/diario_boe/txt.php?id=BOE-A-2020-3824

[9]  https://www.consumerfinance.gov/about-us/blog/guide-coronavirus-mortgage-relief-options/

[10]  https://www.canada.ca/en/department-finance/news/2020/03/the-covid-19-emergency-response-act-receives-royal-assent0.html, https://business.financialpost.com/real-estate/mortgages/canadas-big-banks-to-allow-some-borrowers-to-delay-mortgage-payments-for-up-to-6-months-to-ease-coronavirus-impact

[11] https://www.gesetze-im-internet.de/englisch_bgbeg/englisch_bgbeg.html

[12]  https://www.nvb.nl/english/corona-banks-offer-smes-extra-breathing-space-six-months-postponement-of-repayments/

[13] https://www.bportugal.pt/sites/default/files/decree_law_no_10_j_2020_en.pdf, https://www.bportugal.pt/en/comunicado/covid-19-moratorium-credit-agreements-bank-customers-entered-force

[14] https://www.bpfi.ie/news/banks-set-joint-plan-support-businesses-personal-customers-impacted-covid-19-pandemic/, https://www.bpfi.ie/key-topics/banking-payments-industry-covid-19-support-faqs/

[15] https://www.nvb.nl/english/corona-banks-offer-smes-extra-breathing-space-six-months-postponement-of-repayments/

[16] http://www.fbf.fr/en/press-room/press-releases/coronavirus--french-banks-step-up-to-the-plate.-simple,-concrete-measures-to-aid-businesses.

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