"[Governor of the Bank of Israel Prof. Stanley] Fischer fired a well-aimed arrow at the right target," a top banker, who wished to remain anonymous, said yesterday. "Mortgages will cost more for some borrowers. Others will be less affected, but the message is sinking in - the Bank of Israel will not hesitate to take radical measures to the point of intervening in the banks' discretion, in order to cool down the market."
The remarks followed the Bank of Israel's directive yesterday limiting the proportion of variable interest mortgages to one third of a total mortgage.
The directive is considered drastic, because it raises the cost of new mortgages. This is because the variable interest mortgages covered by the directive account for 76% of all new mortgages, and because variable interest mortgages are cheaper than fixed-interest mortgages, so any change in the mix in favor of fixed-interest mortgages will raise the overall interest rate.
At the same, the mortgages portfolio mix at the banks will fundamentally change. Variable interest mortgages of all types - unlinked (prime interest rate plans), linked to the Consumer Price Index (CPI) or to foreign currencies - account for most of the current portfolio. An analysis by "Globes" of the banks' financial reports found that variable interest rate mortgages currently account for NIS 127.5 billion - 63% of the aggregate mortgages portfolio of NIS 202 billion.
These figures are understated, because most mortgages taken in the past decade were variable interest mortgages: they rose from 50% of all mortgages in 2004 to peak at 96% in late 2008. Since mid-2009, they account for 85-90% of all new mortgages.
Since the Bank of Israel exempted variable interest mortgages whose interest rate changes at intervals of over five years, the directive does not apply to about 10% of the banks' mortgage portfolio.
A breakdown of current variable interest mortgages by banks found that Mizrahi Tefahot Bank (TASE:MZTF) is the market leader, with NIS 41.4 billion. Bank Leumi (TASE: LUMI) is in second place with NIS 39.7 billion in variable interest mortgages, and followed by Bank Hapoalim (TASE: POLI), with NIS 29.3 billion.
The other banks lag far behind. First International Bank of Israel (TASE: FTIN) has NIS 8.4 billion in variable interest mortgages, Israel Discount Bank (TASE: DSCT) has NIS 4.3 billion, Bank of Jerusalem (TASE: JBNK) has NIS 3.9 billion, and Union Bank of Israel (TASE: UNON) has NIS 500 million.
Published by Globes [online], Israel business news - www.globes-online.com - on April 28, 2011
© Copyright of Globes Publisher Itonut (1983) Ltd. 2011