Bank of Israel Governor Stanley Fischer on Thursday warned that mortgages were safe assets for Israeli banks in the past but must be closely monitored in the future.
"I consider the Bank of Israel to be responsible for the stability of the banking system. That does not mean to say that we have to defend everything that the banks do, but we expect them to act responsibly, including toward households and companies, small and mid-sized businesses," said Fischer at the central bank's conference on the stability of the financial system.
Fischer said that complaints resurfaced when the Bank of Israel raised the banks' capital adequacy requirements. "They feared that the new demand would reduce credit. We achieved a good balance between the need to strengthen the banks while allowing them to grant loans. There is no contradiction between maintaining sustainable growth and protecting the stability of the banking system. That is one reason why we are very, very cautious about the real estate market.
"40% of the banks' portfolios are invested in real estate, in the broad meaning of the term, in Israel. There is no restriction on the weight of mortgages in the credit portfolio. Although there is no restriction, we closely monitor this."
Fischer continued, "We've used supervisory measures in the past to prevent problems in this market. Historically, mortgages in Israel were considered as fairly safe assets. That was true in the past. That is why there are some people who tell us that we should calm down about the mortgage and real estate market, and that is correct. But history is full of examples of assets that were safe - until they stopped being safe. That is why can cannot relax about the real estate market."