The main findings in the report are as follows:
- Overall, the domestic financial system remained stable in the first half of 2023. The ongoing stability was abetted by the resilience and stability of the banking system and the insurance companies and the sound functioning of financial infrastructures (payment and settlement systems). The safety cushions that households and firms had built up—for reasons including the fiscal incentives and monetary easing that occurred during the COVID-19 period—made them more resilient to potential shocks.
- During the period reviewed, the domestic financial system was affected by two main factors: 1) continued monetary tightening and slowing of economic growth in Israel and abroad, coupled with difficulties in the global banking system, and 2) uncertainty about the implications of the legislative changes relating to the domestic judicial system for the performance of the economy and the financial system at large. If these domestic and global processes gather strength, they may challenge the system in the medium term.
- The monetary tightening that was needed due to ongoing inflation, along with the attenuation of growth, was reflected in an upturn in risk indicators—and, with them, pricing—in the real-estate and financial markets as well as an increase in credit cost. Consequently, households and businesses are contending with a heavier burden of debt servicing.
- The solvency of households and the business sector remained firm. In business credit, however, the risk to construction and real-estate companies—an important industry in terms of exposure of the financial system—increased.
- The uncertainty surrounding the legislative changes raised Israel’s risk premium and was accompanied by currency depreciation that abetted the upturn in inflation, helped to push equity prices down, and exacerbated volatility in the foreign-currency and financial markets.
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