The Israeli economy received a modest upgrade from Credit Ratings agency Moody’s on Wednesday, rating the banking system as “stable” after two years of giving it a “negative.”
The upgrade pointed to expectations of better economic conditions, particularly in Europe, Israel’s main trading partner, and increased liquidity and capital buffers in the banking system. Moody’s forecast a growth rate of 3.4% in 2014.
The assessment noted certain problems remaining, however, including the housing market, the shekel’s appreciation, and political uncertainty.
Real estate prices rose 79% since 2008, the report said, and “rising prices increase the vulnerability of buyers and mortgage lenders to an increase in interest rates, given that around 70% of mortgages were granted at variable-rate interest, according to the BOI.”
Although an increase in unemployment or a major correction in the housing market could result in more problem loans, the worry was mitigated by more stringent mortgage standards set by the Bank of Israel and high levels of household financial assets.