The Bank of Israel's Financial Stability Report for the second half of 2023 delivers a pivotal assessment on the economic repercussions of the recent conflict and its impact on household and business financial health. Amidst these challenging times, the central bank underscores the significant step taken by Israeli banks in approving the deferral of repayments for nearly NIS 6 billion across more than 300,000 loans. This measure, the report highlights, was primarily aimed at cushioning households and businesses from immediate financial strain, with about 30% of these loans being crucial for those directly impacted by the conflict, including individuals evacuated from their homes, families of murder victims, or army reservists activated on emergency notices.
Delving deeper into the implications of these financial adjustments, the Bank of Israel points out the dual-edged sword of postponing debt repayments. While on one hand, it offers a temporary financial respite, allowing for the sustenance of consumption and business activities, it also poses a subtle warning against the potential pitfalls of accruing additional debt during such volatile times. Specifically, the report draws attention to the increased vulnerability of households that may find servicing their debt challenging due to reduced income—an outcome exacerbated by the conflict.
The Bank of #Israel has introduced a temporary directive that enables customers to increase their mortgage loans by up to NIS 200,000 ($55,500). The purpose of this loan is to alleviate suffocating debt for households. https://t.co/yW6ArmKQ4T
— Farnak (@Farnakyboy) January 1, 2024
The report reminisces about the loan repayment deferral plan initiated by the banking sector, which provided a three-month, interest-free, and fee-free postponement for those affected by the terror attacks on October 7 or the subsequent war. This initiative saw 75,000 loans, including mortgages among others, benefit from this deferral, with an additional 150,000 household loans postponed outside of this plan, amounting to about NIS 2 billion in deferred repayments.
However, the Bank of Israel's cautionary stance towards taking on additional credit during these times is stern. The report evidences a slight pre-war increase in credit arrears, propelled by rising interest rates, which have further escalated since the conflict began, particularly in non-housing credit sectors. Moreover, the escalation in "monitored credit"—loans under scrutiny due to concerns over repayment capabilities—signals a cautious environment for lenders and borrowers alike. The deterioration in credit quality from credit card companies, marked by a sharp rise in non-accrual credit and arrears of 90 days or more, underscores the growing financial distress within the consumer segment.
Bank of Israel warns households on debt: https://t.co/b2OkCsj278 | via @GlobesEnglish
— Joseph Fischer (@Jofischer007) January 31, 2024
In light of these observations, the Bank of Israel advises households to critically assess their financial decisions, especially regarding new debt. The warning is grounded in the broader context of an ongoing economic recovery process, which is expected to be lengthy and arduous, especially with interest rates remaining elevated. Households are thus encouraged to weigh the immediate benefits of additional credit against the long-term financial implications, advocating for a prudent approach in navigating these uncertain economic times.
