Corona: The aviation, fashion and gas industries have suffered the hardest hit – the capital market

The Bank of Israel publishes an overview of the situation of business borrowers in industries affected by the corona crisis. The review examined bank credit risk, focusing mainly on large borrowers belonging to industries affected by the crisis, and to which banks have exposure above a certain threshold.

Of the industries surveyed, the most significant damage was suffered by the aviation, fashion and natural gas industries. Whose activity decreased significantly during the crisis due to the closure of the sky, trade restrictions and the rules of social distance that affected private consumption and global and local demand for natural gas. In the hotel industry, the crisis has hit the most powerful urban and boutique hotels that rely mainly on foreign tourism, and more moderately the resort and leisure hotels.

In the commercial real estate industry, the powerful damage was mainly in the closed and large malls, And lower intensity in neighborhood centers due to being located in the open air, close to residential neighborhoods and with a rental mix more biased towards essential activities such as: food and pharma.

In the leasing industry, the rental activity was mainly affected Exposed to foreign tourism, and there was also some violation of leasing contracts whose validity was extended by significant discounts, in view of a partial transition to work from home. The construction industry and car importers suffered more moderate damage as their activity continued at such and such intensities during the year.

The intensity of the damage was not uniform even among the various borrowers: in general, the crisis affected small and medium-sized companies more significantly and lower intensity the large borrowers.. Also, the impact was more powerful in borrowers who reached a crisis with high leverage and without sufficient liquidity surpluses. The impact of the crisis has moderated among borrowers who have quickly taken adjustment measures to deal with the risk and reduce it by measures such as streamlining, expelling employees, raising debt and realizing assets, debt repayment and deferred payments, utilizing regulatory relief, adjusting business strategy to the period (e.g. .

Following the corona, structural changes may occur that may affect certain industries even in the post-crisis period – for example, as a result of moving to work from home, reducing the use of an attached vehicle, reducing business flights and more. Looking to the future, there is still uncertainty about the new routine situation that will apply: in some industries the consequences of the crisis are likely to have an impact in the long run after returning to routine (e.g., aviation, offices). In other industries, the impact depends mainly on the duration of the crisis and government measures. In other industries where demand is tough (e.g., residential construction, natural gas), estimates are that the level of risk is not expected to rise significantly even in the long run. Also, despite the increase in risk in industries affected by the crisis, there is no single borrower or group of borrowers that jeopardizes the stability of the banking system.