Israel's Banking System - Semiannual Report, 2020

02/02/2021
All Press Releases In Subject:
The Banking System
 

During recent months, Israel and the rest of the world have been in upheaval as a result of the COVID-19 pandemic. The onset of the pandemic led, among other things, to a significant decline in economic a​ctivity within a relatively short period. Within a few weeks, the unemployment rate had risen to unprecedented levels and the GDP in Israel and worldwide experienced a major contraction.

 

The Bank of Israel and the Banking Supervision Department have taken a number of important steps in order to minimize the crisis’s effect on the public, and have assisted Israeli banks by means of various regulatory tools in order to support economic growth and minimize the harm to the banks’ customers as much as possible. (For further details on the measures taken during the first months of the crisis, see Box 3.1 of the Survey of Israel’s Banking System for 2019. For further details on the steps taken later on, see Box 1 of this survey.)

 

This survey presents the Israeli banking system’s results for the first two quarters of 2020. At this stage, the macroeconomic situation’s effect on the banks’ balance sheets and financial statements is manifested in a number of ways. First, the volatility in the markets has affected the banks’ performance and balance sheets. In addition, the banks have significantly increased their credit loss provisions (primarily group losses), which reflects an expectation of future credit losses. Finally, the program to defer loan repayments is having an effect on the structure of their revenues and cash flows.

 

From a forward-looking perspective, there is still a high level of uncertainty regarding the pandemic’s effect on the economy, which is dependent on the response to the virus. In this context, there are many scenarios of differing intensity and duration of the effect of mitigation policy on the economy. During these months, the Banking Supervision Department has carried out an evaluation using macroeconomic stress tests for the banking system, based on a uniform scenario that includes a deterioration in morbidity in Israel and a return to the restrictions placed on economic activity. The results of the test indicate that the banking system is expected to experience significant losses if the crisis worsens, originating primarily in the portfolio of consumer and business credit. However, these losses will not affect the banking system’s ability to continue supporting economic activity during the crisis and thereafter. These results illustrate the strength and stability of the Israeli banking system in general, and of each of the banks in the system. (For further details on the test and its results, see Box 2 in this survey.)


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