The Banking Supervision Department announces the formulation of an additional framework for deferring mortgage and consumer loan payments

Questions and answers: The framework for deferring loan payments

·         With the outbreak of the coronavirus crisis, with the goal of assisting customers in dealing with the ramifications of the crisis, the Banking Supervision Department formulated a framework, which was adopted by the banking system, that enables customers to defer bank loan payments in 3 activity areas: mortgages, consumer credit, and business credit.

·         The framework that was formulated on May 7, 2020, and has since been extended and expanded twice (hereinafter, “the existing framework”), allows customers to submit a deferral request until December 31, 2020, and to defer the loan repayments for a period of 6–9 months, subject to the terms of the framework.

·         Within the framework of the existing framework, from March until mid-November 2020, the banks deferred loan payments for hundreds of thousands of customers in all activity areas, at a cumulative amount of NIS 11 billion.

·         In accordance with constant assessments of the current situation that include, among other things, various data analyses for formulating an up to date picture of the situation, ongoing contact with the banking system and with the public, and with the understanding that the ramifications of the coronavirus crisis are expected to impact on the cash flow difficulties of some customers in 2021 as well, the Banking Supervision Department formulated an additional framework, which has been adopted by the banking system, that enables customers who deferred their loan payments in line with previous frameworks, to continue to defer mortgage and consumer loan payments (hereinafter, “the additional framework”). It should be noted that in contrast to the previous programs, under the additional framework there is an emphasis on the returning borrowers to repaying their loans, through a lenient payment schedule.

·         The additional framework is intended to assist customers who have been markedly adversely impacted by the ramifications of the crisis and who meet several cumulative conditions (hereinafter, “the target population”).[1] These customers can contact their bank with a request to act in accordance with the additional framework, in a manner that will lead to a marked reduction of monthly payments, for a prolonged period of time.[2] The deferral will be made without fees and in accordance with the original interest rate on the loan. The framework’s full conditions are detailed in an appendix to this notice.

·         It should be emphasized that the target population has the ability to defer the loan in accordance with the terms of the additional framework, or to agree to another arrangement that the bank offers them, or obviously to return to paying the loan regularly.

·         It should be recalled that deferring repayments is essentially new credit (albeit given at the original interest rate terms in the framework) and therefore customers should make informed use of this tool and not defer loan payments unnecessarily. Likewise, customers who defer mortgage payments should closely examine the impact of the deferral’s effects on the existing (life) insurance coverage in the framework of the mortgage.

·         The period for submitting the request to defer loan payments under the additional framework will be January 1, 2021—March 31, 2021. The additional framework will go into effect on a date from January 1, 2021 until March 31, 2021 at the latest, due to the need for the required preparation of the banks’ computer systems required for implementing the framework.

·         At banks in which the date of implementation of the framework is deferred to a date later than January 1, 2021, (though, as noted, not later than March 31, 2021), the existing framework will remain in place for the target population (subject to the customer’s request), until the date that the additional framework goes into effect at each bank.

·         This framework presents the minimum terms for deferring loan payments, and each bank may expand it for the good of its customers and per their request.

·         With regard to customers that are not included in the additional framework, the banks will continue to assist through individual arrangements and finding appropriate solutions for each customer. In addition, the date of submitting deferral requests in accordance with the existing framework remains in place. That is, based on it deferral requests may be submitted until December 31, 2020.

 

Governor of the Bank of Israel Prof. Amir Yaron said, “The framework for deferring loans was among the first economic steps taken with the outbreak of the crisis, in order to allow someone who was adversely impacted to create a cash-flow bridge and help to get through the period of uncertainty. To date, the framework has made it easier for hundreds of thousands of households and businesses, which have used it to reduce their monthly payments. In contrast to previous frameworks, this time income tests were also incorporated into it. We did this in order to focus the handling on customers who have been negatively impacted by the crisis and have not yet recovered.

 

The current goal is to create certainty for those households, and to enable them to make the necessary adjustments and to prepare accordingly, even before the end of the deferral period in about another month. This stage is very important, as it enables a household and the bank that provided it with a loan or mortgage, to return to a healthy process of payment, even if partial, by spreading out payments according to the ability of the household that was negatively impacted in the crisis. This spreading out will enable such customers to continue to bridge over until they return to financial robustness and enhanced ability to make repayments as the crisis ends.

 

The additional framework joins a long list of policy steps taken by the Bank of Israel since the beginning of the crisis, and we are working at this time with all the relevant entities at the small and micro business level as well. I would like to again note the readiness of the banking system to assist its customers in these challenging times.”

 

The Supervisor of Banks, Yair Avidan, said, “The additional framework, which enables additional easings in the deferral of loan payments, has been formulated with the goal of assisting a focused group of customers that were markedly negatively impacted by the crisis and are still dealing with its ramifications. This framework places an emphasis on continued providing of easings to customers alongside the arranging of a lenient timetable for repaying the debt, in contrast to freezing or deferring the debt. Even though the additional framework allows deferring loans for a relatively long period of time and the manner of spreading them out is flexible, it is recommended to consider strongly before deciding to defer the loan, including giving weight to the period of deferral. I commend the banking system on adopting the additional framework, which joins additional processes taken by the banks since the beginning of the crisis to assist their customers at this time. The Banking Supervision Department will continue to follow developments closely and will take additional and responsible steps, to the extent necessary, to continue to support customers in dealing with the various difficulties due to the ramifications of the crisis.”

 


 

Appendix 1: Mortgage framework

 

 

Mortgages

Clarifications

Target population

·         Loans that are in a status of payment deferral

·         Customers whose (net) household income does not exceed NIS 20,000 as of February 28, 2020

·         Adverse impact on household income of 40 percent or more

·         The terms are cumulative

·         The manner of checking the amount of income and of the adverse impact on income: At bank’s judgment

Bank’s judgment

Not incorporated

 

Manner of reducing the monthly charge

Alternative A: Reducing the monthly payment by about 25%, 50%, 75%

 

(Rate of reduction is customer’s choice)

Alternative B: Deferring the principal component in a manner that leads to a reduction in the monthly payment of 40% to 75%

 

(Rate of reduction will be a product of the specific loan characteristics, among other things the composition of the loan, age of the loan, and the term to final repayment)

Only applies to loans with an amortization table that includes interest and principal components

 

Every bank offers all its customers one of the 2 options, in line with automation abilities.

Interest rate

The interest rate in the agreement

 

Period of the reduced payment

24 months or less (customer’s choice)

In line with the automation abilities of each bank

Manner of cumulative payment after the period of reduction

·         Spreading out the cumulative payment that was reduced over the remaining period of the loan

 

OR

 

·         Extending the period of the loan in line with the reduced payment period

In line with the automation abilities of each bank

Fees

No fees

 

 

 

 

Appendix 2: Consumer loans framework

 

 

Consumer credit

Clarifications

Target population

·         Loans that are in a status of payment deferral

·         Customers whose (net) household income does not exceed NIS 20,000 as of February 28, 2020

·         Adverse impact on household income of 40 percent or more

·         The terms are cumulative

·         The manner of checking amount of income and of the adverse impact on income: At bank’s judgment

Bank’s judgment

Not incorporated

 

Manner of reducing the monthly charge

New spreading out of the entire loan in a manner that reduces the monthly payment by 50%

 

 

Interest rate

The interest rate in the agreement

 

Impact on loan term

The extension of the term is a function of the reduced monthly payment, by at least 50%, and provided that it does not exceed 3 additional years

 

Fees

No fees

 

 

 

 

 


 

Appendix 3: Updated data: Credit repayment deferrals to date in the banking system

 

Since the outbreak of the crisis, the banking system has deferred loan payments as denoted below:

Between March and the middle of November, 2020, the banking system approved about 859,000 requests submitted for deferring loan payments at a total amount of NIS 10.8 billion.

 

Data on bank credit payment deferrals beginning from March 1, 2020 through November 13, 2020

 

Consumer

Housing

Small business

s

Commercial

Total

Number of deferral requests for which there was a deferral

486,344

185,250

178,626

8,648

858,868

Amount of deferral (NIS million)

2,020

3,278

3,621

1,905

10,825

Balance of credit in respect of which the payments were deferred (NIS million)

16,993

106,684

24,144

26,614

174,326

Share of total credit portfolio

12.0%

25.4%

22.2%

6.8%

16.4%

 

 

 

Balance of debt for which payments were deferred, as of October 30, 2020

Percent of total portfolio

NIS billion

Number of customers

Private individuals – nonho

using

6.5

144,390

6.1%

Housing loans

46.8

100,694

11.2%

           



[1] Cumulative conditions: Customers whose loans are in a deferral status as of the start date of the additional framework; that as of February 28, 2020 have net household income that does not exceed NIS 20,000; and for whom there is an adverse impact on their income of 40 percent or more.

[2] See detailed table.​