Debt Developments in the Nonfinancial Private Sector, Third Quarter of 2019

 

 

In the third quarter of 2019, the balance of nonfinancial private sector debt increased by approximately NIS 4.4 billion (0.3 percent) to about NIS 1.5 trillion. The increase came from growth in the balance of household debt (approximately NIS 9.4 billion; 1.6 percent), most of which was in housing debt. This was mostly offset by a decline in the balance of business sector debt (about NIS 5 billion, 0.5 percent).

 

The nonfinancial business sector’s outstanding debt[1]

  • ·    In the third quarter of 2019, the balance of business sector debt declined, for the first time in two years, by approximately NIS 5 billion (0.5 percent), to NIS 945 billion. The decline derived from a quantitative decline in loans from nonresidents, and from a 2.4 percent appreciation of the shekel against the dollar, which reduced the value of the debt denominated in and indexed to foreign currency.  Despite this, there was a quantitative increase in bank loans, tradable bonds in Israel, and nonbank loans (Figure 1).
  • ·    In the third quarter, the business sector issued about NIS 8 billion in bonds, similar to the quarterly average amount raised in the preceding 4 quarters. About half the issuances in the quarter were by companies in the real estate and construction industry. In October 2019, the business sector issued bonds worth about NIS 2.7 billion, mostly in tradable bonds. (Figure 3).
  • ·    In the third quarter, the spread between yields on corporate bonds that are included in the Tel Bond 60 index, and the yield on CPI-indexed government bonds narrowed by about 0.1 percentage points to about 1.1 percentage points, further to narrowing in the previous two quarters. In October 2019, the spread continued to narrow, to about 1.09 percentage points (Figure 4).


Household debt

  • ·     Households’ outstanding debt increased by approximately NIS 9 billion (1.6 percent) in the third quarter of 2019, to about NIS 581 billion. Outstanding housing debt increased by about NIS 6 billion (1.7 percent) to about NIS 379 billion. There was an increase in the pace of growth of outstanding nonhousing debt, contrary to the downward trend of this pace in the past two years. Nonhousing debt increased in the third quarter by about NIS 3 billion (1.6 percent), to about NIS 202 billion (Figure 5).
  • ·     During the third quarter, households' current account overdraft[2] declined by about NIS 0.7 billion to about NIS 11 billion, and its share of total nonhousing debt declined by about 0.4 percentage points to about 5.5 percent, further to the downward trend in overdraft that began in 2016. There are a number of factors that could explain this development.  These include the increase in credit possibilities for households, such that consumers have a greater ability to borrow in an orderly fashion at a lower interest rate than they would pay on current account overdrafts; improved household income, which is reflected in a decline in the unemployment level and increases in the average wage in the economy; and greater household financial awareness.
  • ·     In the third quarter of 2019, new mortgages taken out totaled about NIS 18.3 billion, higher than the corresponding period in the previous year (about NIS 14.8 billion). However, in October 2019, there was a decline, due to seasonality, in new mortgages taken out, and they totaled about NIS 4.4 billion.  Net of the effect of seasonality, new mortgages taken out in October totaled about NIS 6 billion (Figure 6).



 Links to Data and Statistics on the Bank of Israel website:

http://www.boi.org.il/en/dataandstatistics/pages/default.aspx

http://www.boi.org.il/en/bankingsupervision/data/pages/tables.aspx?chapterid=13

http://www.boi.org.il/en/BankingSupervision/Data/Pages/Tables.aspx?ChapterId=19

http://www.boi.org.il/en/DataAndStatistics/Pages/MainPage.aspx?Level=3&Sid=74&SubjectType=2




[1] Israeli firms, excluding banks, credit card companies, and insurance companies.



2] Households' nonhousing debt to banks is comprised of loans for nonhousing purposes and current account overdrafts.  The current account overdraft balance is defined as the actual utilization of the credit facility provided in private customers' current accounts.  If there is approval for exceeding the credit facility in the current account, this is also included in the current account overdraft component. Utilizing and exceeding the credit facility apparently carry a higher interest rate.​