JERUSALEM (Reuters) – Israeli banks may be allowed to recover limited installment payments later this year after overcoming a wave of loan delays during a coronavirus pandemic, the country’s banking regulator said.
Yair Avidan, a bank director at Bank of Israel, also said he supported banks’ moves into “digital wallets” and expects Apple Pay to enter the Israeli market this year, with offers similar from Samsung and Google following later.
Three of Israel’s largest banks – Hapoalim, Leumi and Discount – have announced plans to launch digital wallets, which allow customers to pay via mobile phones in stores.
Avidan, a veteran of the banking industry who took over the Bank of Israel position in May last year, said 2020 was a tough year for the banks and the economy as a whole.
But he told Reuters easier rules that would allow lower capital requirements and delays businesses and households in lending and mortgage payments, while continuing to lend, helped with ‘keep the economy afloat.
Following the policy applied under the Avidan precursor, banks had to suspend shares and share purchases in exchange for a 1% reduction in capital ratios.
Avidan said while the economic environment remained uncertain, a continental resumption was on the table.
“I believe in the second half of 2021, this may be the right time to start allowing shares but not at the same size before this crisis” and depending on economic conditions, Avidan said.
Prior to the outbreak of the COVID-19 pandemic, banks paid up to 40% of quarterly net profit. But Avidan said that once shares started, payments would appear to be capped at around 15%, which is similar to what is expected in Europe.
Bank stocks rose on Avidan’s views, with the Tel Aviv Banking Index up nearly 2%, pushing its gains to above 5.5% so far in 2021 after a 22% loss last year.
During the first nine months of 2020, profits at five major Israeli banking institutions slipped to 4.9 billion pence ($ 1.5 billion) from 8.6 billion in the same period in 2019. Meanwhile, loan loss provisions rose to 7.3 billion shekels from 1.6 billion.
However, banks have been able to maintain a ratio of Tier 1 equity capital to risk components of 10-12%. The government has backed lending and the central bank has lent to low-rate banks to boost credit for small businesses.
Avidan said that 70-80% of customers who have taken out loans have started to repay these debts and that there will still be only a “low installment” in the cancellation period until June, with financial difficulties at 2 -3% which may have long-term effects.
The mid-month bank dropped rules on mortgages aimed at reducing monthly payments, and Avidan said it was monitoring the situation to ensure banks were complying.
Israel’s unemployment rate has risen 15% as a result of the pandemic that forced businesses to close or scale down in three locks in the past year, resulting in a 2020 economic downturn of about 3.7% decrease.
Avidan said banks have passed several pressure tests over the past year. “As far as we can see at the moment, customers and banks are in a good position,” he said, praising the high standards of banks’ loan loss arrangements.
Asked if any banks were in danger of failing, Avidan said: “Absolutely not … We are very confident about the stability of the banks.”
“I’m not saying there will be no bankruptcy or bad debts but for now we see this in the single figures very low,” he said. “Some customers suffer. We will try to bring it to a minimum but not just on the banks. It’s on the customers too. “
Avidan said it would bring an economic crisis three times what we are currently experiencing, with falling capital markets and Israel suffering severe geopolitical difficulties to damage the banking system.
($ 1 = 3.2479 pence)
Reporting by Steven Scheer; edited by David Evans and Jason Neely