overdraft 88 298.
(photo credit: Ariel Jerozolimski)
Although more money was available to banking customers within their new credit limits, they actually have reduced the total size of Israel's overdrafts since the end of last year, the Bank of Israel said Tuesday.
According to the central bank, the total overdraft fell to NIS 36 billion in July from NIS 39b. in December 2005 even as the total scope of approved credit limits increased to NIS 70b. from NIS 55b. over that same period.
Furthermore, within the total "minus," the amount of credit extended within approved limits expanded to NIS 30b. in July from NIS 27b. in December, while the amount exceeding credit limits shrunk to NIS 6b. from NIS 12b. in the same period, the bank said.
"These data clearly indicate that the aim of the [Bank of Israel's order to stop allowing overdrafts beyond approved credit limits] to 'bring credit within the framework' is indeed being achieved, and the nature of activity in the private customer accounts is approaching internationally accepted [norms]," the central bank said.
The Bank of Israel noted that, despite concerns to the contrary, "this aim was achieved without creating a credit bottleneck," and in fact, consumers did not rush to take advantage of increased credit limits that boosted the amount of cash potentially available.
To prepare for the implementation of the Bank of Israel's order, commercial banks increased customers' limits, consensual and unilaterally set credit limits were placed on accounts and additional solutions fitting customers' needs and financial capabilities were arranged during 2005 and especially in the first half of 2006, the central bank noted. The order took effect on July 1.
Accounts belonging to uncooperative clients for whom credit limits were set unilaterally by the commercial banks accounted for about 20% of the 3.2 million accounts for which limits were required. Customers for whom limits were unilaterally set have until January 1, 2007 to shop around and try to find a better deal at another commercial bank before the unilateral limits expire.
As of the end of August, the number of accounts exceeding credit limits was still "relatively high" - at 13% of private customers, 23% of small business accounts and 28% of large business accounts - but in most of the accounts customers were only a "very small" amount beyond their overdraft limit, the central bank said.