Trader looks at market graph 311 (R).
(photo credit: REUTERS/Tony Gentile)
Please note the number 530.
It is the number that indicates the change
that is unfolding in the real estate market. NIS 530 million is the banks’
provision for doubtful debts in the second quarter of 2011. To put it in
perspective, the provision for doubtful debts for 2010 as a whole was NIS
In other words, the banks’ provision for doubtful debts for the
second quarter alone soared.
Part of the increase was due to Bank
Hapoalim’s specific problems with real estate developer Mordechay Zisser, but
the significance cannot be missed – the banks have begun making larger
Another figure has to be added – NIS 149b. This is the
aggregate credit to real estate, which increased by NIS 4b. in the first half of
2010, after increasing by NIS 15b. in 2010 as a whole. At the same time, the
banks’ income from real estate is stagnant.
Income totaled NIS 1.92b. in
the first half, just 0.6 percent more than in the corresponding
When the banks make bigger provisions, their income from real
estate is stagnant, and the growth rate of bank credit is falling, no official
statement that the party is over is needed.
However, the banks’ profits
The aggregate profit rose 7% over the corresponding half
to NIS 678m. in the first half.
These are figures for the first half of
the year, but profit from real estate totaled NIS 128m. in the second quarter,
60% less than in the corresponding quarter.
Bank Leumi continues to be
the leader in real estate, with the highest income at NIS 732m. in the first
half, 4% less than in the corresponding half.
The gap between Bank Leumi
and Bank Hapoalim was unchanged. Bank Hapoalim’s income from real estate was NIS
558m. in the first half, 4% less than in the corresponding half.
between the two banks’ profits is wider. Bank Leumi’s profit from real estate
was NIS 328m. in the first half, and Bank Hapoalim’s was NIS 121m.,
giving a difference of NIS 227m.
Israel Discount Bank had NIS 324 million
revenue from real estate in the first half, 15% more than in the corresponding
half. Its provision for doubtful debts rose from NIS 25m. to NIS 68m., and its
profit from real estate was unchanged at NIS 134m.
Bank of Israel had NIS 119m. revenue from real estate in the first half and a
profit of NIS 33m. Mizrahi Tefahot Bank had NIS 113m. revenue from real estate
in the first half and a profit of NIS 47m.
The growth in credit to buyers
groups ended in the second quarter.
Aggregate credit totaled NIS 12.04
b., just 0.6% more than in the preceding quarter. Credit to buyers groups was 7%
higher in the first quarter than in the fourth quarter of 2010.
buyers groups rose by 7.9% in the first half. Balance sheet credit totaled NIS
3.2b. at the end of June, and off-balance sheet credit, i.e. customers’ unused
credit lines, totaled NIS 8.8b.
So who will finance construction? The
banks’ decision to halt credit to the real estate industry was not wholly an
Over the past few months, the Bank of Israel has
been sending a clear message to the banks: calm it down.
Supervision Department ordered the banks to review their real estate portfolios
and carry out stress tests on the basis of various scenarios: what would happen
to their collateral and what would happen to the viability of new projects if
home prices fell by over 15%. At the same time, the government has taken many
measures to boost the supply of land for construction, which is supposed to
lower home prices.
The contradiction is clear.
The Bank of
Israel’s unofficial message to the banks is tighten financial conditions for
real estate companies and loans for projects. The onset of an economic slowdown
means that the banks are automatically closing the credit taps.
other hand, the government expects contractors to begin large scale housing
construction, and the question is – who will finance all this new construction?
The equation does not add up.
The banks will not act unprofitably, and in
conditions of falling prices, they will want to protect themselves by tightening
financing terms. The writing is on the wall in large letters – the banks will
not finance residential construction.
The government is ignoring the
problem, but it will reach the threshold very quickly.