Publication of the Banking Supervision Department’s Semiannual Review for the first half of 2020


This review is being published in the course of the coronavirus crisis that has affected the entire world since the end of the first quarter of 2020, and that the IMF has called the worst economic crisis since the severe crisis of the 1930s. The outbreak of the virus led to a marked negative impact in economic activity within a relatively short period of time. Within a few weeks, the unemployment rate increased to unprecedented levels and GDP in Israel and worldwide contracted notably.

 

The review presents the results of the financial statements of Israel’s banking system in the first two quarters of 2020. At this point, the impact of the macroeconomic situation on the banks’ balance sheets and their reports can be seen through several main channels. First, the market volatility affected the banks’ performance and balance sheets; the banks markedly increased their credit loss allowances (mainly the group allowances), which reflects an expectation of credit losses in the future; and an outline for deferring the repayment of loans impacted on the banks’ revenue structure and cash flows.

 

Against the background of the development of the crisis, and its ramifications on economic activity in general and the banking system in particular, in May 2020 the Banking Supervision Department carried out an examination of the impact on the banking system of the possible scenarios of the crisis’s development. These were in accordance with the macroeconomic forecast published that month by the Research Department. The examination was conducted using stress-testing tools.

 

The goal of the examination was to identify the focal points of risk in the banking system in view of the crisis, and to examine the banking system’s ability to continue supporting the economy’s needs by providing credit. In addition, this examination was an assisting tool for making decisions on the steps required, from the banking system’s perspective, for support and rehabilitation of the economy.

 

The results of the examination indicate that the banking system continues to maintain its resilience and stability, though the banking system’s profitability will be markedly affected. (For an expanded discussion on the examination and its results, see Box 2 of this review.)

 

Since the onset of the crisis, the Banking Supervision Department has used a wide range of tools, part of which were implemented for the first time, in order to reduce the intensity of the crisis’s adverse impact on the economy. Despite this, many businesses and households have considerable difficulty and the solutions from the banking system are a complementary step to solutions based on government assistance. The Banking Supervision Department will continue to maintain the stability of the banking system and the public’s money, will enable and will encourage the banks to help the economy by extending credit, and will ensure consistent provision of essential banking service for the benefit of the public and the economy over the course of the crisis and afterward.