According to supervisor of banks David Zaken, the lenders should add around $740m by 1 January 2017 to be safe against the risks from growing mortgages.
The banks will require to raise the capital target equal to 1% of the outstanding housing credit portfolio.
This will be in addition to increasing their common equity tier 1 capital by 9% in 2015. The country’s two major banks, Hapoalim and Leumi, need to raise capital to 10% by 2017.
According to the data released by the Bank of Israel, outstanding housing credit has increased by around 40% in July since 2011 to ILS254bn ($70bn), whereas home-purchase loans have increased to 31% of outstanding bank credit in June from 20% in December 2007.
Zaken said: "Experience worldwide shows that crises in the banking system frequently develop as a result of the banks’ exposure to housing credit and to the real estate industry, mainly due to accelerated expansion of mortgage volumes.
"There is a concern that the assessment of risks inherent in the housing credit portfolio, particularly in view of its share in the bank credit portfolio, is lacking, inter alia due to the fact that during economic boom periods, the history of repayments by housing credit lenders is better than other types of credit."
Image: The Bank of Israel headquarters in Givat Ram, Jerusalem. Photo: courtesy of Ester Inbar.
