Occupied Jerusalem- Israeli banks and credit card companies appeared in a state of confusion in light of the constant talk about the possibility of an all-out war with Hezbollah on the northern front with Lebanon. As the war on Gaza entered its ninth month, the Central Bank of Israel obligated these institutions to be prepared for a bleak future scenario for Israel’s economy.
To prevent the internal economic front from being undermined and to avoid its collapse in the event of the outbreak of a comprehensive war, the Central Bank’s Banking Supervision Authority asked the financial authorities of banks and credit card companies to respond to an “extreme scenario” that it had prepared for the purpose of conducting “severe tests” under pressure, within the emergency situations it conducts. Central Bank for the 12th year in a row.
This year’s scenario includes the outbreak of a multi-front war, a state of international isolation and boycott, and does not rule out a comprehensive war against the Islamic Resistance Movement (Hamas) in Gaza, Hezbollah in the north, Iran, and even the Palestinians in the West Bank.
Banks and credit companies are preparing through plans to provide cash liquidity at ATMs throughout Israel, postpone loan payments, including housing loans, reschedule these loans and the monthly installments paid by customers via credit cards, and carry over the payments.
According to data published by the Bank of Israel since the beginning of the war on Gaza:
- A total of 390,000 loans were deferred, with a total value of about NIS 8.2 billion ($2.2 billion).
- Deferred amounts among households amounted to about 40%, while the remainder was in the business sector.
- 73% of the loans that were deferred have already returned to regular payment with banks and credit companies, which represents 66% of the total amount deferred.
Expect the worst
In the first expected scenarios for how the Israeli banking system will deal, and the expected repercussions of the war on the internal market and the population’s consumption patterns, the website of the Yedioth Ahronoth newspaper published the results of a survey conducted by the Midgham Institute for the benefit of Hapoalim Bank (Workers), which sought to identify the challenges, trends, and financial behavior of Israelis during the war.
The results of the survey were reviewed by Professor Zvika Eckstein, Head of the Ahron Institute for Economic Policy at Reichmann University in Herzliya, and Raneen Mordi, Director of the Financial Growth Center at Bank Hapoalim. They tried to answer the question of the “extreme scenario” and the pressing test for the Bank of Israel, which is: How can the Israelis face reality and win the economic war?
In an attempt to answer this question, Mordi explained that periods of crises and wars pose an economic challenge, because they increase the state of uncertainty among consumers and customers, saying that “in times like these, people do not make long-term financial decisions.”
Professor Eckstein: Escalation in the northern sector and the outbreak of a comprehensive war with Lebanon could lead to a greater economic crisis in Israel
The survey data reflects well the state of mind of Israelis these days, as Mordi says that she sees that during this period Israelis are trying to reduce their expenses and “there is a sharp decrease in spending on entertainment and leisure, which are considered luxuries, and Israelis are investing more in food and everything related to the home.”
She explained that the survey shows that 49% of Israelis feel that the war has negatively changed their sense of financial security, while 45% of participants reported that what makes them feel financially secure is their savings.
Professor Eckstein says that the escalation in the northern sector and the outbreak of a comprehensive war with Lebanon could lead to a greater economic crisis. According to estimates by military officials, the war will last two months, meaning that the gross domestic product will decrease by 2.5%, the debt will jump to 12%, and there will be a decrease in… Credit rating and additional increase in interest rates.
anticipation with fear
Returning to the “extreme scenario,” Adrian Bilot, economic affairs analyst at Calculist newspaper, says that Israeli banks and local credit companies are preparing for the possibility of a decline in the government’s credit rating by 3 points at once.
He pointed out that the Israeli banking system is preparing for expectations of a sharp increase in interest rates by the Monetary Committee of the Central Bank, in addition to a sharp jump in the risk premium reflected in the rapid erosion of public financial assets, including stocks and corporate bonds.
According to the Bank of Israel website, Bellot says that the purpose of preparing for this scenario is to “contribute to understanding the risk positions to which the banking system, each of Israel’s banks, and the services provided to customers in times of war and emergency are exposed.”
Avriel: A multi-front war with Lebanon and Gaza will lead to a high jump in the number of deaths and injuries, and create a historic economic crisis in Israel.
It is believed that such a stress test for banks and credit companies aims to help assess the strength of the Israeli banking system, to ensure that there is an adequate level of capital and liquidity in the markets, despite the challenges and risks in light of the war of attrition on the Gaza front, and the possibility of a comprehensive war.
As is the case every year, after the Banking Supervision Authority receives the reactions and estimates of banks and credit companies to deal with risks and threats under the shadow of war, “the Bank of Israel will formulate and publish the results of the stress and stress test, and the results are expected to appear only in the coming weeks,” according to what the analyst says. .
“So far, the results of the extreme tests have been exactly the same, and the realization of the extreme event may lead to losses in the banking system and markets, sometimes more or less, but it does not harm the stability of the entire system,” said Bellot, considering that the Israeli financial and banking system is stable, but it will face for the first time a scenario of a comprehensive war on multiple fronts.
Loan deferral
In anticipation of the realization of the “extreme scenario,” the Israeli Central Bank rushed this week, for the fourth time since the Al-Aqsa flood, to publish a plan to extend the financial aid schedule and postpone housing and credit loan payments for another 3 months.
When publishing the plan, Bank Superintendent Daniel Hahiashvili noted that “the security situation in Israel remains complex,” explaining the decision to extend the comprehensive plan adopted by the banks for the fourth time, in order to continue providing flow facilities that will help the population return to a regular payment routine. “With the necessary adjustments made, as the data, market data, and field reality of the economy show.”
He pointed out that the main part of the plan adopted by banks and credit companies indicates the possibility of postponing the payment of all loans, mortgages, consumer credit and commercial credit, for customers of banks and credit card companies.
The banking supervisor told the Globes economic newspaper that this possibility also applies to direct victims of the war, including residents of the “Gaza Envelope” settlements and residents of the border towns in the north, who receive a free deferral of payments and loans, while for the rest of the bank customers, the deferral of payments and loans will be subject to the payment of taxes and fees.
Historic economic crisis
Despite plans to avoid undermining the banking system, provide liquidity in the markets, and preserve the home front economy during a comprehensive war, there are those who expect a stable picture for the Israeli market and economy, as the editor of the economic newspaper De Marker, Eitan Avriel, says that “a comprehensive war with Hezbollah for a month will cause almost paralysis.” Perfect for the Israeli economy.
Avriel explains that, contrary to all other predictions, all-out war is no longer about numbers and data indicating slow growth, recession, or a lost economic year, but rather about the destruction of the economy.
He pointed out that the outbreak of a multi-front war with Lebanon and Gaza would lead to a high jump in the number of dead and wounded, and would cause a historic economic crisis in Israel, with a decline in the gross domestic product, a decline in every economic component and indicator, a decline in the general standard of living for Israelis, in addition to a significant decline in employment rates and a rise in unemployment rates.
He concludes by saying that Israel will also suffer severe damage to internal immunity, with a significant decline in the sense of personal security, massive destruction of infrastructure, harm to international standing, and the expansion of isolation and boycott of Israel, with an extremist government that lacks the executive capabilities to restore the situation to what it was before the war.
