BANK OF ISRAEL
Office of the Spokesperson and Economic Information
July 6, 2014
Press Release
An excerpt from the upcoming "Financial Stability Report" which will be published shortly:
The Household Sector from a Financial Stability Perspective
 In recent years, the rate of nominal increase in household sector debt has accelerated,
primarily as a result of an increase in housing debt. Nonetheless, the ratio of
household debt to nominal GDP increased only slightly, while the ratio to disposable
income did not change, and is markedly lower than that figure in most advanced
economies.
 The balance of assets and liabilities of households in Israel indicates that households,
on average, have a large surplus of assets over liabilities, and their leverage is low
compared with other advanced economies.
 In an analysis by income deciles, it can be seen that for households in the bottom three
deciles, which are more exposed to the risk of recession and unemployment, the
mortgage payment to income ratio is greater than the average.
Since the global financial crisis broke out in 2008, household debt in Israel has increased
by 55 percent, and in March 2014 it reached NIS 412 billion. However, from the end of
2007, household debt as a share of GDP increased only slightly, and as a share of
disposable income it did not change at all, due to an increase in GDP and disposable
income, and it is markedly lower than the parallel ratio in most advanced economies
(Figure 1). Most of the increase in the debt balance derived from credit for housing—debt
for which the rate of increase has accelerated in recent years (Figure 2), and at the end of
2013 represents about 70 of the balance of household debt in Israel and about 30 percent
of the banks’ credit portfolio. At the same time, in 2013, there was an increase of 7 percent
in nonhousing credit from both banks and institutional investors. These developments
expose the lending banks to risk from the household sector, should there be a sharp and
rapid turnaround in the housing market, especially if together with the turnaround there is
an increase in the interest rate or a recession and negative impact on borrowers’ income.
Recent years have seen expanded use worldwide of national balance sheets for analysis
and assessment of financial stability. An analysis of various financial ratios from the asset
and liability balance of households (such as the ratio of liabilities to total assets and to
total financial assets, and the ratio of mortgage debt to real estate assets; see Table 1)
indicates that households in Israel were more leveraged in 2012 than in 2006, but on
average they have a large surplus of assets over liabilities and their leverage is low relative
to other advanced economies.
Bank of Israel – from the "Financial Stability Report": The Household Sector from a Financial Stability Perspective
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However, since there is considerable income inequality in Israel, it is especially important
to look at the average household in order to examine the stability of the household sector.
To that end, there should also be an assessment by income deciles, in particular those
which are exposed to a greater extent to the risks of recession and unemployment. One of
the main indicators of borrowers’ repayment capacity is the payment to income ratio
(PTI). If this ratio is examined by income decile, it can be seen that the PTI ratio1 (the
average of 2007–12) for the bottom three deciles is greater than the average (Figure 3).
These deciles are more exposed to unemployment and thus the risk is greater that they will
be unable to repay a mortgage.
1
The income in each decile is the average income of all mortgage borrowers in that decile.
Furthermore, we only took into account PTI of less than 1.
Bank of Israel – from the "Financial Stability Report": The Household Sector from a Financial Stability Perspective
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Table 1
Balance of household assets and liabilities in Israel, 2012
Share of total
NIS billion assets
Real assets
Real estate
52%
Mortgages
269
5%
80
2%
Consumer credit
114
2%
2,630
54%
Total liabilities
383
8%
4,506
92%
4,888
100%
Financial assets
NIS billion
Cash and deposits
509
10%
Securities, excluding stocks
Stocks
Mutual funds
288
6%
251
5%
Share of total
assets
157
3%
Insurance reserves
Various receivables
942
19%
112
2%
Total financial assets
2,258
46%
Total assets
a
Share of total liabilities
and household net
NIS billion worth
2,550
Automobiles
Total real assets
a
Liabilities and
household net
worth
4,888
100%
Net worth
Liabilities and
household net
worth
Includes life insurance, and provident, pension, and advanced training funds.
SOURCE: Based on Central Bureau of Statistics.
Bank of Israel – from the "Financial Stability Report": The Household Sector from a Financial Stability Perspective
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Bank of Israel – from the "Financial Stability Report": The Household Sector from a Financial Stability Perspective
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