Bank of Israel Worried Over Rising Personal Debt

YERUSHALAYIM -
The Bank of Israel head office in Yerushalayim. (Flash90)
The Bank of Israel in Yerushalayim. (Flash90)

The low interest rates of the past few years have had a profound – and worrying – impact on Israel’s economy, a report by the Bank of Israel on the stability of the economy showed. According to statistics gathered by the Bank, over 30 percent of Israeli households have piled up consumer debt of NIS 94,000 ($25,000) on average – an astounding figure for a country where the average income hovers just below NIS 120,000 ($31,000) a year.

Consumer debt does not include mortgages – although that type of debt has also jumped over the past decade, the Bank said – but does include debt to banks on overdrafts, credit card and payment debts, personal loans and the like. Personal debt rose over the past year by over 6 percent, and at the end of April of this year topped NIS 481 billion ($125 billion).

The Bank has been following this metric – measured by a poll of over 4,000 households chosen for their variety on the standard of living scale and other factors – since 2012. Personal debt rises, the study showed, as income rises; the average household in the lowest three deciles of income averaged around 18 percent of income, rising to 34 percent in the sixth decile. From there it declines, with debt falling the higher the income.

The Bank said that the news about personal debt, “especially on car loans that are not secured by assets,” which many companies are offering to attract new customers, “is of grave concern.” Banking reform legislation which the Knesset is set to pass is designed to make the banking sector more competitive, but perhaps lawmakers should think twice. “Increasing comparison will no doubt lead to the issuance of even more credit and the growth of leverage by buyers,” the report said. “We must proceed with caution in order to preserve the stability of Israeli households.”