Last week, the Bank of Israel published data on mortgages taken in July. The report indicated that this was another strong month, with mortgages totaling NIS 5.35 billion. However, the figures were lower than the forecasts, which predicted that mortgages would exceed NIS 5.5 billion, a figure similar to that for June.
"Globes" has found that the actual volume of mortgages for July was even higher, probably amounting to NIS 5.6 billion. The Bank of Israel figures did not include the share of Harel Insurance Investments and Financial Services Ltd. (TASE: HARL) in the joint mortgage venture with Bank Leumi (TASE: LUMI), resulting in a distorted picture of the mortgage market. Estimates are that Harel's share of mortgages taken in July was NIS 200-250 million.
Several months ago, Leumi entered a joint venture with Harel, whereby in 2016-7 the parties will share mortgages totaling NIS 8 billion, with Harel's share being NIS 4 billion. Leumi will manage the mortgages, and Harel will provide varying monthly sums during these two years.
However, the data published by Bank of Israel do not include Harel's share in these mortgages, only Leumi's, although, as far as the customer is concerned, these are regular bank mortgages.
As mentioned, this omission resulted in mortgage figures being lower than the actual data, and reflecting only the banks' exposure to the market. Omitting Harel from market data also results in biased figures on the average mortgage size. According to the Bank of Israel's report, July saw a significant, 5%, drop from an average mortgage, from NIS 700,000 in June to NIS 666,000 in July.
As mentioned, this figure is also distorted. The average mortgage is calculated by dividing the overall financial total of mortgages by the number of mortgages taken. Yet, while the number of mortgages includes those Harel had a share in, its part is omitted from the overall financial volume. If we add the funds allocated by Harel to the mortgages, the average mortgage remains almost unchanged compared with June.
"We do not expose data for a specific entity"
The reason for these distortions is that the Bank of Israel Banking Supervision Department only publishes data on the banks' exposure to mortgages, which is its field of responsibility. All the same, we should ask whether it is proper to publish partial data, without even mentioning, in a note, the total value of mortgages provided by the banks, even if the funds were actually provided by a financial institution.
Bank of Israel sources say that the reason the full data were not published was that it was data for a single entity (Harel-I.A.), while the Bank of Israel avoids exposing figures for specific entities, only publishing aggregate market data. Nevertheless, the Bank of Israel sources say that in the future they will find ways of reflecting the full data, all the more so if the share of financial institutions in joint loans increases.
The past few years have seen a significant expansion of cooperation between banks and financial institutions on the provision of credit, with joint loans totaling dozens of billions of shekels. However, this was mainly business credit.
In the past year, cooperation between the parties has also extended to the field of mortgages. During this period, the banks sold financial institutions loans totaling NIS 2.4 billion from their mortgage portfolios. This constitutes a negligible share of the overall portfolio, less than 1% of almost NIS 300 billion, but these recent deals seem to be only the opening shots. Harel and Leumi launched a joint new mortgage venture, and other such ventures may appear in the future.
Why did cooperation on mortgages begin? The banks face severe capital restrictions nowadays, causing them to meticulously plan the credit they provide and closely manage their capital. In the past few years, the Bank of Israel has also imposed limitations on mortgages, including an increase in the capital which the bank must allocate against the mortgage it provides.
For financial institutions, this is a response to the need to find new investment channels that will provide good long-term revenue flow.
Published by Globes [online], Israel business news - www.globes-online.com - on August 29, 2016
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