Summary of Developments
In the first half of 2015, the banking system maintained its resilience and stability and presented adequate financial results, even though real economic activity in Israel and abroad continued to grow moderately and the interest rate environment remained low. The banking system’s stability is supported by continued accumulation and strengthening of capital and the setting of capital targets that are appropriate to the banks’ risk profile, by the adequate level of liquidity and the quality of Israeli banks’ sources compared with the rest of the world, and by the strengthening of the banks’ risk management framework and corporate governance. During the period reviewed, there was continued improvement in indices of portfolio credit quality and a continued trend of decline in concentration of banks’ exposure to large borrowers. With that, the banking system faces several challenges. The share of credit to the construction and real estate industry and housing credit has been increasing for several years and in June 2015 reached 44 percent of the bank credit portfolio. The banks’ high exposure to credit to the construction and real estate industry, to housing credit, and to consumer credit—and the correlations that exist between these types of credit—continue to pose a risk to the banking system. Likewise, the low interest rate environment, over time, is liable to encourage investors to take bigger risks in searching for returns, and increases the risk of overleverage by borrowers. An additional challenge facing the banking system is maintaining an appropriate level of profitability over time against the background of the interest rate environment and in view of the low operational efficiency of the system relative to other banking systems around the world. This challenge is expected to intensify in the coming years with enhanced competition that will be created due to the structural changes currently being advanced. In recent years an increase in operational risk has also been seen, particularly in view of increased cyber warfare against banks in Israel and abroad, data leakage risks, and required technological improvements in banks’ core systems. In addition, banks’ exposure to compliance risks and conduct and legal risks increased, against the background of numerous investigations of financial entities in Israel and abroad in a wide range of areas and the imposing of sanctions on some of them.
The Full Survey in PDF format
Israel’s Banking System – First half of 2015 – Tables
Israel’s Banking System – First half of 2015 – Figures