Effective cost of unindexed shekel loans

Unindexed credit issued to the public by the Israeli banking corporations.

The Fair Credit Law, 5753–1993, regulates the provision of credit in the nonbank market, up to Amendment number 5.  Among other things, this law sets out that the maximum total cost of credit for this type of loan shall be 2.25 times the total average cost of unindexed credit issued by the banks.  For this purpose, up until Amendment 5, the Law sets out tha the Bank of Israel shall published the total average cost of credit to the public each month.

Pursuant to Section 5(a) of the text prior to Amendment 5, the total average cost of credit to the public is calculated as the weighted average of the cost of credit in SRO accounts and the cost of term credit in the unindexed segment in shekels.  Until March 2013, the figures were calculated on the basis of net credit (credit minus loan loss provisions).  These figures included the data from the seven largest banks only.  Starting in April 2013, the figures are calculated on the basis of gross credit (before loan loss provisions), and include all banking corporations.  The cost is calculated in annual effective terms, and includes interest income.  This publication is necessary even after Amendment 5 to the Law, since, in accordance with the applicability provisions, the previous text of the Law will continue to apply on contracts agreed-to prior to the applicability date of the Law.