Israel Banks Business Lending Drops Amid Tighter Regulation

Israeli banks will probably boost lending to households after slower economic growth and higher capital requirements cut business borrowing to a two-year low, Psagot Investment House Ltd. said.

Commercial and industrial lending dropped to 386 billion shekels at the end of May 2013, the lowest level since March 2011, according to data compiled by Bloomberg Industries.

The Bank of Israel in March 2012 required lenders to increase their core minimum capital ratio to 9 percent by January 2015 for all banks and to 10 percent by January 2017 for the two largest, Bank Hapoalim (POLI) Ltd. and Bank Leumi Le-Israel (LUMI) Ltd. Economic growth will probably slow to 3.2 percent in 2014 from 3.8 percent this year, the central bank said June 24.

“Higher capital requirements, a slower economy and borrower restrictions are causing banks to switch their focus to less-risky household lending,” Terence Klingman, head of research at Psagot in Tel Aviv, said on July 25. “We’ll see this trend continuing as the overall political environment and public opinion are not conducive to business investment, leading to less demand for loans.”

The regulator has prompted banks to reduce borrower concentration in their portfolios by cutting back exposure to large borrowers and large business groups and by increasing the proportion of retail credit in the credit portfolio.

20 Families

Corporate ownership in Israel is among the most concentrated in developed economies. About 20 families, mainly through pyramid-form corporate structures, control 25 percent of the listed companies and 50 percent of the total value of the Tel-Aviv Stock Exchange, according to the Bank of Israel’s 2009 annual report.

In March, Israel Discount Bank Ltd. (DSCT) said it was prioritizing capital preservation and de-leveraging. The same month, Bank Leumi Le-Israel Ltd. reported that its commercial credit dropped to 50 percent in 2012 from 60 percent in 2008.

About 28 Israeli companies started debt rescheduling talks with bondholders in 2012 and the level will probably remain “high” also this year and in 2014, according to data compiled by the Israel Securities Authority. Bank Leumi withdrew from a debt arrangement with businessman Nochi Dankner’s Ganden Holdings Ltd. in April, after thousands of consumers protested the agreement. Motti Zisser’s Elbit Imaging Ltd. (EMIT) said in February Bank Hapoalim asked the court to foreclose on the assets of controlling shareholder Europe Israel MMS Ltd.

The five-stock TA-Bank Index has gained 0.4 percent this year compared with a 7.4 percent advance in the Bloomberg Banks Index. The benchmark TA-25 Index has added 3.6 percent in the same period.

To contact the reporter on this story: Shoshanna Solomon in Tel Aviv at ssolomon22@bloomberg.net

To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net

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