Gaza war increases pressure.. Bank of Israel warns families against increasing their debt

The Central Bank of Israel warned Israeli households against further borrowing, writing in its Financial Stability Report for the second half of 2023 that Israeli banks will delay the repayment of nearly 6 billion shekels (about US$1.6 billion) in more than 300,000 loans. Agreed to postpone. Said. Israeli newspaper Globes.

deferred receivable

The Bank of Israel indicates that about 30% of these loans have been allocated to families and companies that have suffered evacuation from their homes (in the Gaza envelope settlements), as part of the program for those directly affected by the killing of their members. Repayment has been postponed. families, or those who were called up as army reserves.

The Bank of Israel points out that from a macroeconomic stability perspective, postponing loan repayments allows households and companies to avoid reducing consumption or activities, and reduces the likelihood of entering a default state, this Anticipating that there will be war on Gaza. The decline in average income from work has resulted in it becoming difficult for families to pay their obligations. According to the newspaper.

In this context, the Bank of Israel referred to the loan repayment deferment scheme adopted by the banking system, according to which families directly affected by the Al-Aqsa flooding operation and the war on Gaza can defer loan repayments for a period of 3 months. Interest or expense, according to the Globes report.

Until the end of 2023, repayment of 75,000 loans (including mortgages and other loans) had been deferred, while repayment of another 150,000 home loans outside the scheme had been deferred. In total, families postponed repayment of installments amounting to approximately two billion shekels.

Infographic of Israel's economic losses due to Gaza war
Infographic of Israel's economic losses due to the Gaza Strip war (Al Jazeera)

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The Bank of Israel sent warnings to households against obtaining new loans during this period, saying, “The ability of households to repay loans is reflected in the percentage of overdue credit balances. Even before the war, there was a debt backlog. A slight increase in (the increase in interest has made repaying loans hundreds of shekels more expensive, and this percentage of total loans has increased somewhat since the beginning of the war, especially in non-housing loans).

He further added, “Furthermore, the rate of loans known as controlled loans (which have a threat that the borrower will not be able to repay) out of the total residential and non-residential loans are 1.2% and 2% respectively.”

He further said, “In any case, households whose income is affected above the debt service limit (and not as a result of recruitment into the Army Reserve, for which the Government pays them), are expected to increase their consumption. reduce, obtain additional credit or use other liquid sources, because “having access to additional credit during this period may increase the vulnerability of households, especially as the process of economic recovery from the war continues and is lengthy, and As long as interest rates remain at relatively high levels.”

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