Debt Developments in the Economy, 2014
Debt Developments in the Economy, 2014.
v In 2014, the balance of business sector debt grew by about NIS 17 billion (2.1 percent) to about NIS 816 billion. The increase in outstanding debt in the sector was influenced by the depreciation of the shekel.
v Despite the increase in the balance of debt, there were net repayments of debt in the business sector this year totaling about NIS 11.5 billion (-1.4 percent), for the first time since 2010. Repayments were observed in bank credit, tradable and nontradable bonds, and credit from abroad. In contrast, there was net raising of debt through nonbank loans.
v Gross bond issuances by the business sector (excluding banks and insurance companies) in Israel totaled about NIS 30 billion in 2014, an amount similar to 2013, mostly through tradable bonds. Despite these issuances, there was a quantitative decline of tradable and nontradable bonds totaling about NIS 7.9 billion.
v The balance of household debt increased by about NIS 28.4 billion (6.9 percent). Housing debt increased by about NIS 15 billion (5.2 percent) since the beginning of the year and totaled about NIS 303 billion. The pace of growth in 2014 was similar to the pace in the previous three years.
v The balance of nonhousing debt increased by about NIS 13 billion (11 percent) since the beginning of the year—a significant increase compared to previous years. Nonhousing debt constitutes about 30 percent of the total household debt portfolio.
The business sector's outstanding debt
v Total outstanding business sector debt declined in December by about NIS 8.4 billion (-1 percent) to about NIS 816 billion. The decline was the result of net repayments of bank credit, tradable bonds in Israel and nontradable bonds. The decline was partially offset as a result of net bond issuances abroad. The shekel-dollar exchange rate and the Consumer Price Index remained unchanged.
v In 2014, there were net repayments of business sector debt (totaling about NIS 11.5 billion, -1.4 percent) for the first time since 2010. The repayments were concentrated in bank credit, tradable and nontradable bonds, and credit from abroad. Despite these repayments, there was an increase of about NIS 17 billion (2.1 percent) in the value of outstanding business sector debt, as a result of the depreciation of the shekel against the dollar by about 12 percent, and net new nonbank loans (Figure 1).
v Breakdown of business sector debt by lenders: Quantitative estimate data (balance differentials minus the effects of price and the exchange rate) show that in 2014, net repayments of debt to the banks totaled about NIS 9.5 billion (-2.5 percent), continuing a trend that began in 2012. There were also net repayments of nonbank debt in 2014, further to the decline in the pace of its growth since mid-2013. The repayments were concentrated in tradable bonds (-3.5 percent) and nontradable bonds, and in credit from nonresidents (-1.5 percent). In contrast, loans from institutional investors continued to grow in 2014, although at a slower pace than in previous years (Figures 2 and 3).
v Data on the breakdown of banking debt by sectors show that in recent years, there has been some replacement of credit to the business sector with credit to households. Since the end of 2011, total outstanding business sector debt to the banks declined from NIS 405 billion to NIS 382 billion, while total outstanding household debt to the banks increased from about NIS 318 billion to about NIS 399 billion (Figure 4).
v The business sector debt to business sector product ratio continued to decline in 2014, by an additional 1 percentage point, to 101 percent at the end of 2014, mainly due to a larger increase in business sector product than in debt. Since the end of the third quarter of 2008, the decline in the debt to product ratio has totaled about 27 percentage points (Figure 5).
v The household debt to product ratio increased by about 1 percentage point in 2014, and was 40 percent at the end of the year, a relatively low ratio in a global comparison. This increase was due to the increase in household debt at a faster pace than the increase in product (Figure 5).
Corporate bond issuances
v Total gross bond issuances by the nonfinancial business sector in Israel totaled about NIS 2.1 billion in January 2015, all in tradable bonds.
v In 2014 , gross bond issuances by the nonfinancial business sector in Israel totaled about 30 billion, mostly through tradable bonds, an amount similar to the 2013 total.
v In 2014, there was an increase in gross issuances through nontradable bonds, which totaled about NIS 8 billion (about 26 percent of total issuances), four times higher than the issuances of nontradable bonds in 2013. For the first time, four Israeli companies raised debt from institutional investors abroad through bonds registered for continuous trading by institutional investors on the Tel Aviv Stock Exchange (Figure 6).
v The real estate and construction industry raised about NIS 12 billion in 2014 (about 30 percent of total issuances), after being prominent in the previous year as well. The banking industry (which is not included in business sector debt) significantly increased its issuances compared to 2013, and raised about NIS 10 billion during 2014 (Figure 7).
v In 2014, bond offerings rated AA- or higher constituted about 44 percent of total issuances, compared to 36 percent in 2013. The rest of the issuances were mostly rated between A- and A+ (42 percent of issuances), a rating typical of real estate companies that were prominent in raising debt this year (Figure 8).
v Households' outstanding debt increased in December by about NIS 3.2 billion (0.7 percent) to about NIS 438 billion, as a result of net new loans.
v During 2014 households’ outstanding debt increased by about NIS 28.4 billion (6.9 percent). The increase was the result of net new loans taken out totaling about NIS 29.3 billion, and was partially offset by the effect of the decline in the Consumer Price Index.
v Housing debt increased by about NIS 15 billion (5.2 percent) during the year, and totaled about NIS 303 billion. The pace of growth in 2014 was similar to the growth in the previous three years (Figure 9).
v Outstanding nonhousing debt increased during the year by about NIS 13 billion (11 percent)—a significant growth compared to previous years. With that, there was no change in the weight of nonhousing debt in total household debt—about 30 percent of the household credit portfolio (Figure 9).
v A breakdown of the balance of nonhousing debt by lenders shows that most of the debt (86 percent) comes from banks, with the rest coming from the credit card companies and institutional investors. The pace of growth of debt from all lenders increased in the past year, although growth was more rapid among the institutional investors (30.4 percent) and the credit card companies (14.9 percent).
v In January 2015, there was a decline in taking out new mortgages, which totaled about NIS 4.6 billion. In 2014, there were about NIS 51.5 billion in new mortgages taken out, similar to the total for 2013 (Figure 10).
The cost of the debt
v In December, the interest rate spreads in the nonindexed track narrowed by about 0.02 percentage points to 3.21 percentage points. Compared to the end of 2013, this differential has narrowed by about 0.15 percentage points, as a result of the larger decline in the interest on outstanding credit than the decline in interest on outstanding deposits.
v During 2014, the interest rate on marginal indexed bank credit (granted during the month) declined by about 0.14 percentage points. The spread between credit and interest on indexed deposits narrowed by about 0.2 percentage points to 1.62 percent at the end of 2014.
v During 2014, the average interest rates on new variable rate, unindexed mortgages declined by about 0.7 percentage points, in parallel with a decline of 0.75 percentage points in the Bank of Israel interest rate. In January 2015, the interest rate increased by 0.08 percentage points to 1.65 percent. (Figure 11)
v The average interest rate on fixed rate CPI-indexed mortgages declined by about 0.37 percentage points during the year. In January 2015, this rate increased by about 0.1 percentage point to 2.28 percent (Figures 12).
v The average spread between the yield on CPI-indexed corporate bonds—measured by the Tel Bond 60—and the yields on CPI-indexed government bonds widened by about 0.6 percentage points on average during 2014 to 1.84 percentage points. In January 2015, this spread remained virtually unchanged (Figure 13).
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 Including only bond issuances by Israeli companies in Israel: tradable offerings on the Tel Aviv Stock Exchange and nontradable offerings reported by the Tel Aviv Stock Exchange (institutional continuous, Nesher and Na’am).