| The Supervisor of Banks today published draft directives for consultation regarding the development of risks related to housing loans. The directives entail a requirement for a higher capital provision for floating-interest loans granted with a high loan-to-value (LTV) ratio. The directives will not apply to small housing loans or loans to those with housing entitlements. |
| The new directives were formulated against the background of persistent developments in the housing market––increases in house prices over the past few years and the growth in housing credit that exceed increases in average household income. The directives constitute an extension of measures introduced earlier by the Bank of Israel to support the stability of the financial system. |
| Developments in the housing market resulted in an ongoing increase in the housing credit portfolio, and in particular in the share of credit granted at floating interest rates, and in the size of the average loan. As a result, borrowers' rate of repayment is expected to increase as the interest rate increases. The directives reflect the increase in banking corporations' credit risk inherent in this portfolio. |
| The new directives require banking corporations to increase their capital provision for floating-interest-rate housing loans granted from October 26, 2010, in which the loan represents more than 60 percent of the value of the property, and the ratio between the floating interest rate part of the loan and the total sum of the loan equals or exceeds 25%. Loans fitting into this category on which the capital requirements were weighted at 35 percent or 75 percent respectively, will be weighted at 100 percent from this date. |
| The directives will not apply to housing loans of less than NIS 800,000 when granted. Neither will they apply to housing loans received by those entitled to housing benefits in accordance with the criteria determined by the Ministry of Housing and Construction. |
| The Bank of Israel and the Bank Supervision Department intend to continue to monitor risks in the industry, and to examine the need to introduce further measures if necessary. |