The Financial Stability Report for the first half of 2024 reviews the financial developments during this period and assesses the stability of the system in view of the ongoing Swords of Iron War in Gaza and its expansion to other areas. The report examines the impact of the war on risk exposure channels, given the resilience of the financial institutions. The level of financial stability is evaluated based on these analyses.
Key Points:
- Despite the continuing security and geopolitical challenges, the financial system in Israel is showing good resilience, with adequate capital ratios, liquidity, and absorption cushions in the banking system and among insurance companies. A low debt to GDP ratio just before the war started and high foreign exchange reserves at the Bank of Israel support the stability of the system.
- During the reviewed period, macroeconomic risk remained high against the background of the security situation and its impact on economic activity, which remained lower than usual. Government financing needs and costs increased, and credit rating agencies downgraded Israel's rating.
- Domestic equity indices increased moderately in the reviewed period. Equity prices relative to companies’ profitability and relative to global stock indices indicated a relatively low pricing level.
- Credit to the private sector increased by NIS 51 billion in the first half of 2024, mainly in the real estate and mortgage industries. The rates of arrears in banking credit are low relative to the debt overall, but there is a slight increase in the share of debt in arrears in certain sectors, particularly among large businesses and among construction companies.
Background on the Report:
In this report, Bank of Israel economists express their assessment of the main risk exposures facing the financial system, analyze the primary exposures, and evaluate potential risk scenarios. The assessments and analyses are based on a review of developments during the reviewed period, an examination of structural changes, the use of analytical models, and assessments of background conditions in global and local economies. The report outlines how the realization of risk scenarios may affect the financial system in the short and medium terms, aiming to raise awareness among policymakers and the general public and enable appropriate preparedness.