From the beginning of March through April 19, 2020, the banking system deferred loan repayments for approximately 360,000 loans, at a financial scope of NIS 4.7 billion, in all activity segments: businesses (particularly small businesses) and households (mortgages and other consumer credit). (The complete data are in the attached presentation.)
Data to date indicate that in general there has not been an increase in the average interest rate on loans to small businesses and households, except for CPI-indexed mortgages in which the interest rate increased by approximately 0.6 percentage points. The Banking Supervision Department assesses that even in this area the interest rate will soon return to decline against the background of steps taken by the Bank of Israel (the reduction of the Bank of Israel interest rate, the Bank of Israel’s intervention in the foreign exchange market, and the reduction of capital requirements on mortgages).
Already at the beginning of the crisis, the banking system, with the Bank of Israel’s encouragement, allowed the deferral of loan repayments, and it has responded positively to the strong majority of loan repayment deferral requests. A small number of deferral requests were not approved. In most cases these were by borrowers who did not comply with the repayment terms even before the crisis.
The data indicate that government intervention is not required in policy for credit repayment deferrals and for the providing of credit. Such intervention will adversely impact the ability to conduct such policy in an informed manner and in line with the characteristics of the borrowers and lenders, and is liable to place at risk the public’s deposits that are the source for extending the credit.
It is important to remember 2 economic fundamentals:
1. The sources for providing credit by the banks are the deposits, which are the funds that the public deposits with the banks
2. Credit has to be returned—bank credit is not a grant
The Bank of Israel has taken numerous steps that have made it possible to defer loan repayments, to increase the credit to the economy, and to prevent an increase in the interest rate despite the increase in risk: the Banking Supervision Department reduced the capital requirements, and clarified the accounting guidelines in a manner that makes it possible to avoid classifying credit for which a deferral has been granted as problematic credit. The interest rate reduction by the Bank of Israel and the decision to purchase government bonds at an unprecedented scope of NIS 50 billion led to a decline in interest rates for all terms, and the Bank of Israel launched a program for loans to banks totaling NIS 5 billion, contingent on the provision of credit to small and micro businesses.
The government’s assistance to companies in the economy, in general and within the framework of loan guarantees, is the central pillar in providing the economic response to the crisis. The Bank of Israel’s policy is complementary to this policy.
The data noted were to be presented by the Supervisor of Banks, Dr. Hedva Ber, but as her father passed away she was unable to participate in the discussion. The presentation and related data were thus presented by the Deputy Supervisor, Daniel Hahiashvili.