The Bank of Israel enables the banking system to expand the scope of credit for financing infrastructures

The Banking Supervision Department gave the banking system an updated directive enabling banks to extend additional credit for financing infrastructure projects, at a scope of 4 percent of the credit portfolio, beyond credit at the scope of 20 percent for other construction and real estate areas. The Banking Supervision Department’s assessment is that the change in the limitation will allow growth of approximately NIS 25 billion in bank credit in the national infrastructures area.

 

According to a Banking Supervision Department directive, credit for financing infrastructure projects in the construction stage is subject to the per-industry limitation to the construction and real estate industry of 20 percent of a bank’s total credit portfolio, or 22 percent under certain circumstances. The Accountant General in the Ministry of Finance contacted the Supervisor of Banks and requested to examine the possibility of facilitating banks’ participation in financing infrastructures, against the background of a large backlog of infrastructure projects planned for the coming years. An analysis carried out by the Banking Supervision Department with the assistance of the Bank of Israel’s Research Department indicated that the risk in extending credit for infrastructure projects carried out as Public-Private Partnerships (PPP) is lower than in regular projects. This is in view of the government’s participation in the project and the existence of government guarantees. As such, and in order to support the long-term growth of the economy, it was decided to amend the directive to in a manner that will enable the banks to extend credit to the construction and real estate industry of up to 24 percent, provided that the addition beyond 20 percent will serve to finance PPP infrastructure projects. The draft will go into effect as a final directive after discussion in the Advisory Committee and receipt of comments from the public.