The Bank of Israel, the apex banking regulatory agency in the country, has asked banks to boost their capital buffers to protect themselves from negative impact of growing mortgages loans and their associated risks.
The central bank observed that mortgage loans have now become sizable chunk of banks’ total assets, and by strengthening their balance sheet, they could be in position to sustain unexpected losses while ensuring financial stability.
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The Bank of Israel supervisor of banks David Zaken was quoted by Reuters as saying that: "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.
"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 … due to the fact that during economic boom periods, the history of repayments by housing credit lenders is better than other types of credit."
The banking regulator has already ordered banks to comply with a minimum Tier 1 capital ratio to risk-weighted assets of 9% by the start of 2015, insisting the country’s two largest banks, Hapoalim and Leumi, to meet capital adequacy ratios of 10% by 2017.
Further, the banks will have to raise their Tier 1 ratios by the equivalent of 1% of the outstanding housing credit portfolio by the start of 2017, the Bank of Israel told the publication.
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