The Bank of Israel will begin conducting repo transactions with supervised nonbank credit providers

Expanding the set of monetary tools:

The Bank of Israel will begin Conducting  repo transactions with supervised nonbank credit providers

 

Bank of Israel Governor Prof. Amir Yaron: “One of the main tasks of the monetary policy we have led during the crisis was to ensure and encourage the flow of credit in the economy and making it accessible to borrowers, with an emphasis on small and micro businesses.  This step joins a long series of policy measures adopted by the Bank of Israel since the start of the crisis, which are intended to help businesses deal with the ramifications of the crisis and get through it successfully.

 

“At the same time, this step provides additional, nonbank, players in the credit market with access to repo transactions with the Bank of Israel, thereby encouraging competition and enhancing their ability to provide attractive credit to customers by lowering the cost of their sources of financing.”

 

The COVID-19 crisis has had a significant and unusual impact on small and micro businesses, and has thereby also had an impact on their access to sources of financing.  The objective of the new policy tool is to increase the supply of credit to these businesses through supervised nonbank credit providers, beyond the credit issued by the banking system.  In view of the crisis, lowering the cost of the financing source for nonbank credit providers will create an incentive for them and contribute to the pass-through from the general interest rate in the economy to the interest paid by small and micro businesses for the credit issued to them.

 

Accordingly, during the crisis, as an additional and complementary tool to the long-term loans issued to the banking system subject to their provision of credit to small and micro businesses, the Bank of Israel will offer repo transactions to nonbank credit providers supervised by the Bank of Israel (credit card companies) or by the Capital Market, Insurance and Savings Authority.[1]  The repo transaction will be carried out subject to the provision of credit to small and micro businesses and in accordance with reporting that will be sent to the Bank of Israel for this purpose.

 

As part of the repo transactions, the Bank of Israel will receive tradable collateral from the providers: government bonds, makam, and corporate bonds under certain criteria.  The interest rate will be set at 0.1 percent, and subject to the provision of credit to small and micro businesses at interest of up to prime+1.3 percent, the interest rate will be at a fixed rate of -0.1 percent.  The transactions will be for 6 months, with the possibility of an additional 6-month period under the same terms.

The new tool will begin operating in the first week of January 2021.  All of the relevant terms and details will be published on the Bank of Israel’s website by December 20, 2020.



[1] Entities that have received a license from the Capital Market, Insurance, and Savings Authority to provide broad credit as defined in the Supervision of Financial Services Law (Regulated Financial Services), 5776–2016.​