• Neither the level of Israel’s public debt in 2020 nor the forecasts for 2021 are anomalous when compared to the other OECD countries, but Israel is in the upper portion of the distribution of states in terms of its deficit rate.  The high-tech industry, natural gas reserves, monetary flexibility, the high household savings rate, and medium-term growth potential are all strong points for Israel.  However, the ratings agencies noted in their reviews that the absence of a budget for 2021 and the continued reliance on the interim budget from 2019, the extent of political stability, and the way in which the government will deal with the structural deficit after the crisis have an impact the State of Israel’s debt risk.
  • In contrast with the crisis’s large impact on the volume of government debt, the impact on total private debt has not been large, but its composition and its inherent risk have been tremendous affected.  The interest rates on credit remained relatively low thanks to many steps taken by policy makers.
  • Monetary policy made use of significant tools in dealing with the crisis.  In addition to foreign exchange and government bond purchases, the Bank of Israel for the first time purchased corporate bonds.  These and other tools enabled the capital market to operate with stability in the financial asset indices relative to the many risk factors, and to support economic activity even under conditions of tremendous uncertainty.
  • The option for the banks to defer loan repayments by the business sector and households through a simple and rapid process prevented the initiation of many debt restructuring procedures in view of the halt to business activity in many industries and the high unemployment rates, particularly during the lockdowns.  Outstanding credit in respect of which payments were actually deferred and which remained in deferral status at the end of November totaled NIS 51.8 billion, accounting for about 8.5 percent of the total household credit portfolio and about NIS 14.3 billion, accounting for about 2.9 percent of total credit to the business sector, with higher percentages among small businesses and lower percentages among large companies.  At the end of November, the Banking Supervision Department announced the formulation of an additional outline intended to assist customers who had been significantly impacted by the crisis and who meet a number of cumulative conditions.  This outline makes it possible for the high credit risks to be spread out over a greater amount of time, which can slow down, and even reduce, credit losses to the banking system.
  • According to Tax Authority data, the volume of business closures declined markedly during the crisis.  We can therefore not identify any increase in the number of bankruptcies relative to the preceding period.  However, these data may change for the worse as government grants, which rely on declines in operating turnover relative to 2019, are reduced.  The rate of businesses whose operating turnover declined by 80 percent or more in July and August, when there were few government restrictions, remained high—12 percent, compared with 17 percent during the first lockdown (March and April).
  • The effects of the crisis and the government restrictions can be clearly seen in the residential real estate market, and particularly in the number of building starts and the number of transactions.  These developments had some impact on the housing demand side during the lockdowns, and also had an impact on the supply side, which will have an impact on prices in the medium terms.
  • ​ Credit suppliers’ loan loss provisions increased, and the profitability of the insurance companies was impacted during the crisis, but financial firms’ ability to absorb these losses is derived from their capital adequacy ratios prior to the crisis.  Thanks to financial assistance from the State and the option of deferring loan repayments, alongside the reduction in capital ratio requirements in the banking system, the banking system was able to continue providing credit and supporting economic activity, while maintaining capital ratios that were higher than the regulatory requirements. 
  • To the Full Repor​t 


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