The Bank of Israel told lenders to set aside more money against losses from home loans, as it seeks to shield the financial system after house prices and credit surged.
The central bank increased the amount of capital that banks are required to hold against most types of home loans, and also told the lenders to set aside more provisions for credits that aren’t repaid. The new guidelines, effective from Jan. 1 this year, were announced in an e-mailed statement today from Jerusalem.
“The Bank of Israel is trying to reduce the transmission between the interest rate and the real-estate market, and give itself greater freedom for an additional rate cut against the background of the slowing economy and strengthening shekel,” said Rafi Gozlan, chief economist at I.B.I.-Israel Brokerage and Investments Ltd. “The likelihood of a rate cut in one of the next two decisions has increased.”
Bank of Israel Governor Stanley Fischer has been trying to contain a real-estate boom fueled in part by expansionary monetary policy aimed at boosting growth.
House prices climbed about 50 percent in the past decade, according to the Central Bureau of Statistics. Housing credit in Israel has jumped about 76 percent in the last five years, the central bank said in today’s statement.
The central bank in May 2010 increased provisions for home loans where buyers put up little equity. A year later it capped variable-rate mortgages at one-third the value of the total loan, and in October last year it set maximum loan-to-value limits for the first time.
The latest measures are “intended to express better the risk inherent in housing loans on banks’ portfolios” after a surge in mortgages and an increase in house prices, Banking Supervisor David Zaken said in today’s statement from Jerusalem.