BoI warns on household consumer debt

Bank Leumi branch picture: Tamar Mitzpi
Bank Leumi branch picture: Tamar Mitzpi

The Bank of Israel found that 30% of Israeli households have an avaerage consumer debt of NIS 94,000.

While its semi-annual Financial Stability Report focuses on the risks in the housing market, the Bank of Israel also devoted a large section of the report to the steep increase in household credit in recent years and the risk it entails.

According to the Bank of Israel, household credit (including mortgages), grew 6% over the past year, totaling NIS 481.7 billion as of the end of April. Non-mortgage credit accounted for a third of that amount.

The Bank of Israel notes that it has been conducting a survey of households since 2012 in cooperation with the Central Bureau of Statistics, and the Ministry of Finance. The survey follows the conduct of 4,621 households; its results show that 30% of the households currently have an average of NIS 94,000 in consumer credit.

The survey results also indicate that the proportion of mortgages is greater in the higher income brackets, rising from 7% in the bottom income decile to 41% in the top income decile. The proportion of total ordinary debt, on the other hand, rises with income only up to a certain point, rising from 18% in the bottom income decile to 34% in the sixth income decile, then falling in the higher income deciles. "It appears that the upper income deciles need less consumer credit to finance their current activity," the Bank of Israel writes.

The Bank of Israel concludes, "Credit that is not for housing purposes is considered more risky than credit for housing, because only part of it is backed by collateral (mainly loans for buying cars). If increased competition leads to more non-housing credit and increased leverage among borrowers, it should be promoted cautiously in order to maintain households' financial stability."

Published by Globes [online], Israel business news - www.globes-online.com - on July 28, 2016

© Copyright of Globes Publisher Itonut (1983) Ltd. 2016

Bank Leumi branch picture: Tamar Mitzpi
Bank Leumi branch picture: Tamar Mitzpi
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