Banks to be required to allocate more capital against their housing credit portfolios

by Adi Ben -Israel

The Bank of Israel said it is imposing new restrictions on mortgages amid a continued increase in home prices and the value of mortgages, with Supervisor of Banks David Zaken distributing a draft guideline to the banks calling for a larger capital cushion against the mortgages they grant to homebuyers.

“The draft guideline is being published in light of the continued growth in housing credit and its proportion of the total banking credit portfolio,” the Bank of Israel said Sunday. “
The aim of the guideline is to enlarge the capital cushion that the banking system allocates against its housing-credit portfolio, because of the rise in the risks inherent in this portfolio, and thereby strengthen the banks ability to absorb unexpected losses, and reinforce financial stability in general.”

The guideline states that, beyond the targets set by the Supervisor of Banks for Tier 1 capital for banking corporations (9% by 2015 and 10% by 2017 for the two largest banks), the lenders will have to increase their   capital by an amount representing 1% of their credit for housing. Implementation will be in stages, with the date set for meeting the capital target determined in the guideline being January 1, 2017