Israel May Raise Banks’ Capital Requirements for MortgagesAlisa Odenheimer
Israeli lenders will have to set aside more capital against home mortgages to help safeguard the financial system after a surge in housing loans, according to a Bank of Israel draft directive published today.
The measure is expected to increase Israeli banks’ capital requirements by about 2.7 billion shekels ($744 million), Supervisor of Banks David Zaken said in an e-mailed statement. The added capital requirement will vary from bank to bank, depending on the amount of housing credit.
The decision is the latest of several by the central bank to shield lenders against possible financial problems among borrowers. Credit to buy homes and housing prices have climbed as the Bank of Israel cut interest rates to 0.25 percent from 3.25 percent in 2011 to help boost growth amid a tepid global expansion.
“Experience worldwide shows that crises in the banking system frequently develop as a result of the banks’ exposure to housing credit and to the real-estate industry, mainly due to accelerated expansion of mortgage volumes,” Zaken said in the statement. “There is concern that the assessment of risks inherent in the housing credit portfolio, particularly in view of its share in the bank credit portfolio, is lacking.”
Outstanding housing credit rose by about 40 percent in July since 2011 to 254 billion shekels, according to Bank of Israel figures. Home-purchase loans rose to 31 percent of outstanding bank credit in June from 20 percent in December 2007, the central bank said.
The Bank of Israel measure will lead to higher mortgage rates, Terence Klingman, head of research at Psagot Investment House Ltd. said in an e-mail. Stiff competition in the mortgage lending market has in the past prevented banks from transferring to customers the full cost of similar central bank measures, he said.
The International Monetary Fund said in December that a correction in the housing market could pose financial stability risks, and that it is “imperative” to boost the system’s resilience.
Mizrahi Tefahot Bank Ltd., one of the banking groups most exposed to housing credit, declined as much as 2.9 percent, and was trading at 43.44 shekels at 3:10 p.m. in Tel Aviv.