Israeli banking system stable but mortgages too high – regulator

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JERUSALEM, May 25 (Reuters) – Israel’s banking system is highly stable, although some fear banks are underwriting too many loans to property companies that buy land, the country’s banking regulator said on Wednesday.

“From a stability perspective, I’m not worried at all,” Yair Avidan, the banking supervisor at the Bank of Israel, told a news conference after the release of its 2021 annual report.

Still, the economic environment has changed, with the Ukraine conflict hurting the supply chain and rising inflation and interest rates potentially leading to more defaults, he noted. “The (financial) system is currently in very good shape, even though the two banks did not pay dividends in the first quarter,” Avidan said.

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Of Israel’s five largest banks, two opted against a quarterly dividend. One pays 50% of net profit and two others will pay 20%, citing the need to conserve capital for growth.

“They have the regulations to maintain minimum capital requirements,” Avidan said.

Israel’s top five banks combined posted a profit of 5.7 billion shekels ($1.7 billion) in the first quarter from 4.3 billion a year earlier on the heels of higher inflation which boosted funding income, while banks continued to unwind large loan provisions made during the pandemic to protect against defaults.

Earlier, the banking regulator issued a directive to banks to allocate more capital to finance purchases of land for construction to minimize risks. Banks must allocate 100% equity on loan values ​​up to 80% and 150% equity above 80%.

Avidan said he was more concerned about “culture” than the marginal risk of lending. “I was bothered in case underwriters would do the same not only in real estate but in some other loans that don’t have substantial collateral like real estate,” he said.

He added that in order to boost competition in the banking sector, another online bank is being approved after Digital Bank started operations last year.

($1 = NIS 3.3584)

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Reporting by Steven Scheer; Editing by Mark Porter

Our standards: The Thomson Reuters Trust Principles.

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