'Banks lag behind OECD countries'

The study was conducted using the list of financial soundness indicators of the International Monetary Fund.

By MATTHEW KRIEGER
October 22, 2007 08:06
2 minute read.
bank of israel 88 224

bank of israel 88 224. (photo credit: Ariel Jerozolimski)

 
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The country's banking system has improved in some areas but still has a ways to go in others to reach the national averages of OECD member countries, according to a Bank of Israel study released Sunday. "The banking system in Israel needs to improve in order to attain averages of OECD countries in the two most important fields of banking stability - capital adequacy and nonperforming loans," the first-ever such study conducted by the central bank said. The leading indicator of capital adequacy - regulatory capital to risk-weighted assets - a measure of the banks' ability to absorb losses at a time of realizing credit risks, stood at only 10.7 percent in Israel, compared to 12.2% on average among OECD countries, the central bank's financial stability branch said. The study was conducted using the list of financial soundness indicators of the International Monetary Fund, a group of indexes that include some 40 indicators such as banks, non-banking financial institutions, capital markets, the real estate market, the business sector and households. The database also contains metadata on definitions and methods of calculation used by each country in compiling its data, which varies from country to country. "While the indicator that reports the assessment of nonperforming loans - the rate of credit not accruing income out of total credit - in Israel stands at a similar level to that of the average among OECD countries (2.3%), this changes when the definition of Israel's nonperforming loans is widened to include all nonperforming loans, reaching 9.5%," the report said. The banking system in Israel did, however, improve in terms of capital adequacy and nonperforming loans in 2006, as regulatory capital to risk-weighted assets rose slightly and the rate of nonperforming loans fell. "One hopes that this improvement will continue in a way that it contributes to strengthening the banks' position in the face of shocks," the report said. The banking system is ranked differently in each of the financial soundness indicators of the IMF in relation to other countries. "In terms of regulatory capital to risk-weighted assets, Israel's banking system was ranked 19th out of 23 OECD countries in 2005; 14th in nonperforming loans and 4th in net open position in foreign exchange," according to the report. Meanwhile, Bank of Israel Governor Stanley Fischer and Finance Minister Ronnie Bar-On are in the US for the IMF and World Bank annual conference. Fischer held a series of discussions on Friday with executives from Moody's and Standard & Poor's regarding Israel's economic performance in the hope of boosting the country's chances for acceptance into the OECD, telling them that Israel's debt-to-GDP ratio has fallen to 80% and the country's economy has not been affected by the US sub-prime mortgage crisis. Moody's currently gives Israel an "A" credit rating, S&P gives an "A2" rating and both companies have assigned the country a "positive" outlook. Neither company has raised Israel's credit rating since 1999, despite the substantial improvement in the country's economy in recent years.

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