To full paper (hebrew)

The
Israeli motor vehicles industry has expanded considerably in recent years, and
is in the midst of further expansion. 
Exposure to the industry is a small portion of the banking system’s
total assets, such that as of now, it does not create a systemic prudential
risk.  However, in view of indications of
an increase in the risk level of some of the borrowers in the industry
(particularly among the leasing companies), it is important to ascertain that
the underwriting and control procedures in the banking corporations and the
credit card companies provide an appropriate response to the rising risk
levels.

 

As
such, the Banking Supervision Department has instructed the banking
corporations and credit card companies to analyze the credit risks to the
“motor vehicle sales” industry and of consumer credit for the purchase of motor
vehicles.

 

The
risk analysis will be done through various scenarios that may affect the
industry, such as an increase in the interest rate and a decline in the value
of collateral.  Based on the results, the
banks and credit card companies will be required to examine the need for
revising credit policy to the industry and the need for tighter controls regarding
existing significant borrowers and regarding consumer credit for motor vehicle
purchases.

 

In
addition, the banks have been sent accepted practices for industry financing
through the Israeli banking system, with an emphasis on the leasing industry,
such as setting a maximum ratio of 60 percent between the value of the vehicle
and the value recognized as collateral for the loan, and a determination that
the value of vehicles should not be relied upon as collateral beyond 5
years.  These practices are not binding,
but it is expected that each banking corporation and credit card company will
examine its risk appetite in relation to them.

 

It
should be noted that some of the banks and credit card companies are already
implementing a close credit policy in the motor vehicle industry, and are acting
in accordance with the accepted practices in financing to the industry.  In this regard, it is the Banking Supervision
Department’s objective to have these practices implemented throughout the
banking system.

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