· Accordingly, on May 7, 2020, the Banking Supervision Department announced a comprehensive framework that was adopted by the banking system, which enables customers to defer loan repayments in three activity segments: mortgages, consumer credit, and business credit.
· With the goal of continuing to assist customers in dealing with cash flow difficulties resulting from the ramifications of the COVID crisis, while managing risks in an informed and responsible manner, on July 13, 2020 the Banking Supervision Department announced an extension and expansion of the previous framework.
· From March until mid-September 2020, the banks deferred loans for about 738,000 customers in all activity segments, totaling about NIS 9.5 billion.
· The government decision to impose a further closure with the aim of dealing with the COVID pandemic carries various implications for customers of the banking system. In order to help customers deal with the ramifications of the general closure, including a decline in income, adverse impacts to employment, and difficulties in repaying loans, the Banking Supervision Department announced a further expansion of the framework, which has been adopted by the banking system and will take effect on October 1, 2020 in the following manner:
o The period for submitting a request to defer loan repayments will be extended to the end of the year, meaning until December 31, 2020. The extension includes all types of loan: mortgages, consumer credit, and business credit.
o Consumer loans up to NIS 100,000:
Customers who have delayed payments for a period of up to 6 months will be able to receive a further deferral up to December 31, 2020 (which will mean a cumulative deferral of up to 9 months). Customers who have not yet deferred payments and are now interested in doing so will be able to receive a deferral of up to 6 months. The deferral that is not at the bank’s discretion relates to the principal component of the loan. The bank is permitted to also enable a deferral of interest in addition to deferral of the principal.
o Mortgages and business credit:
The previous framework will continue to apply as detailed in the appendix.
· It is important to emphasize that payment deferrals are the equivalent of new credit (issued under the original interest terms as part of the framework), and customers must therefore make informed use of this tool and not defer loan payments unnecessarily.
· The additional expansion period is intended to reduce uncertainty and to enable customers who are in need to reach payment arrangements with the banks according to their abilities and situation.
· Alongside this, the Banking Supervision Department again emphasized to the banking system that they must operate with sensitivity toward the customers and to avoid initiating legal proceedings against customers as much as possible. Banks must continue to try to reach forward-looking payment arrangements with customers in accordance with each customer’s circumstances, in order to enable them to deal with the implications of the continuation of the crisis.
· The framework that was formulated presents the minimum terms for deferring the loans, and each bank may expand it for the benefit of its customers and at their request (as some banks have done).
Bank of Israel Governor Prof. Amir Yaron said, “Since the beginning of the crisis, we have been working with all methods and tools to an extent never before seen, in order to enable the orderly functioning of the economy and the financial markets, alongside continuous efforts in consulting on government policy.
“The framework extension that the banking system has taken upon itself today, partly through tools that the Bank of Israel has enabled, is a further tool for assisting those adversely affected by the crisis, mortgage borrowers, and other borrowers who are in need of this bridge, to endure this difficult period.
“The extension of the framework is evidence of the banking system’s further commitment to assist its customers during these difficult times. Their commitment to the loan deferral framework is important and welcome. At the same time, it is important to emphasize that in the coming months, the banks and their customers will be able to start preparing for the day after the loan deferral, and to arrange how the loan payments will be spread out as necessary.”
Supervisor of Banks Yair Avidan said, “The further expansion of the framework is intended to provide more “breathing space” for customers who are encountering further difficulties due to the continuation of the crisis and its implications. The assistance and guidance for customers during this complex period is our primary concern, and the expansion we have announced today joins the many measures we have taken thus far, all with the same objective—to make things easier for the customers. I commend the banking system on its commitment to expand and extend the framework to benefit their customers during this complex period. However, we must remember that deferring payments is the equivalent of a new loan, which involves costs. Therefore, before making a decision to defer payments, it is important to examine the implications of the deferral, including its economic price (interest rate, amount of the monthly repayment following the deferral, and so forth). It is recommended to use this alternative only after examining its necessity and its cost. At the same time, it is also important to note that deferring payments will not be allowed for an unlimited time, and we must therefore act diligently to reach payment arrangements that are consistent with customers’ abilities, considering the challenges of this period.”
Updated data—deferrals carried out to date in the banking system
Since the outbreak of the crisis, the banking system has deferred loan repayments at unprecedented scopes in all activity segments, as detailed below:
Between March and mid-September 2020, the banking system approved over 738,000 requests submitted for deferring loan repayments at a total amount of about NIS 9.5 billion.
|
Credit repayment deferrals from March 1, 2020 through September 18, 2020 |
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|
|
Consumer |
Housing |
Small business |
Business Commercial |
Total |
|
Number of loans for which there was a deferral |
401,688 |
173,603 |
156,676 |
6,610 |
738,577 |
|
Amount of deferral (NIS million) |
1,638 |
2,894 |
3,129 |
1,852 |
9,513 |
|
Share of total credit portfolio |
10.6% |
25.0%* |
21.1% |
6.7% |
15.8% |
* The rate of housing credit that is in delayed payment status as of August 2020, constitutes about 12 percent of the housing credit portfolio.
Updated expanded framework
|
|
Customer group |
Deferral period |
Last date for requesting a deferral |
Spread of payments |
Maximum interest rate |
Fee |
|
Mortgages |
A borrower with no late payments on the loan, as of the two months preceding the date on which the request is submitted.
The deferral is of principal and interest, with no bank discretion. |
Customers who have already deferred mortgage payments for a period of up to 6 months will be able to obtain a further deferral until December 31, 2020.
Customers who have not yet deferred mortgage payments and are now interested in doing so will be able to obtain a deferral of up to 6 months, and can submit a request until December 31, 2020. |
December 31, 2020 |
Spread out over the remaining loan period |
The interest rate in the original loan agreement. |
The deferral will be made without charging a fee. |
|
Consumer credit up to NIS 100,000** |
Relating to a request for a further deferral: A borrower with no late payments in the loan as of February 28, 2020.
The deferral shall be on the principal without bank discretion. A bank is permitted to also defer the interest in addition to the principal. |
Customers who have already deferred payments for up to 6 months may obtain a further deferral up to December 31, 2020, provided that there are no late payments in the loan as of February 28, 2020.
Customers who have not yet deferred payments and now wish to do so can obtain a deferral of up to 6 months. This also applies to customers that had late payments in their loans in the two months preceding the date the request was submitted. |
Payments are added at the end of the loan period*** |
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|
Business credit |
A business with annual turnover of NIS 25 million, that has been adversely affected by the crisis.
Loans were paid back in an orderly manner until February 28, 2020 during the year preceding that date, and the business is expected to get through the crisis and be able to meet its loan repayments following the crisis. |
Up to 6 months, at the bank’s discretion. |
Payments are added at the end of the loan period*** |
Clarifications:
* Excluding a borrower in legal proceedings.
** Excluding loans in commercial collaboration with a third party.
*** The spread of loan repayments is subject to technical restrictions resulting from the bank’s computer system. If necessary, alternative solutions for the distribution mechanism will be suggested.
**** The interest rate—deferred payments will bear interest at a rate that shall not exceed the interest rate in the loan contract. It is important to emphasize that the deferral of loan repayments is the equivalent of taking out a new loan for the amount of the deferred sum.