Globes 4.1.2017 (Translated)
A senior banker: “The pressure in Real Estate finance is discharging”.
In recent years, contractors have complained that they are suffering a credit crunch. The reasons behind this is that the banks have almost reached their sector limit exposure of 20% of their capital.
A few months ago, Dr. Hedva Ber, the supervisor of Banks, decided that reinsuring sales low bank guarantees portfolio would enable a capital relief for the banks and allow an increase to their credit to this sector. Bank of Israel estimated that this relief will allow increase in exposure the Real Estate sector by 10 billion NIS.
Just this past year and half, the majority of the banks acquired insurance from reinsurers to protect credit in the Sales Law Guarantees portfolio which is estimated at 70 billion NIS.
In additional, the supervisor of the banks, allowed to reduce 70% of the insured assets for single borrow measures.
This means that the extent of exposure of banks to the real estate sector will be reduced allowing them to increase the credit limit without exceeding the 20% limitation.
Some banks already mentioned that they began to feel the effect of this capital relief. “Developers in the residential sector, expect a significant advancement which they feel already” says a senior banker.
Alongside the positive trend of capital relief, there is some risk involved with this transaction. The treaties of the Sales Law guarantee portfolio are relatively short term, with an average of one year. While it’s possible to renew the guarantee, extreme events such as: a large-scale disaster abroad, exceptional insurance payment demands, change in risk claims of reinsurers or even a drop of their credit rating, could result in a rejection on the treaty and a gradual return on the credit exposure of the bank.
Such a scenario would force the banks to adjust the construction loan portfolio relatively quickly, reduce exposure to the real estate market, which in return could hold back the credit crunch in the area and cause deterioration.