2024-01-31 14:30:41
Bank of Israel Photo: Jonathan Sindel, Flash 90
The stability report for the second half of 2023 published by the Bank of Israel reviews the financial developments and provides an assessment of the level of stability of the system in light of the main development in the half – the murderous terrorist attack of October 7 in the southern settlements and the “Iron Swords” war that broke out in its wake. In view of the circumstances, this report focuses mostly on the consequences of the realization of the geopolitical risk on the risk exposure channels and on the resilience of the financial institutions, and assesses the level of financial stability based on these analyses.
The main findings, as analyzed by the bank’s economists, reveal that the murderous terrorist attack that occurred on October 7 and the “Iron Swords” war that began as a result are the realization of an extreme scenario for a geopolitical shock. The realization of the risk did not result in damage to the financial stability of the economy. This is, among other things, against the background of the high standards of the stable regulation until the outbreak of the war and thanks to the preventive measures taken by the Bank of Israel at the beginning of the event and the government’s aid guidelines.
The impact of the war was reflected in all the main channels of risk exposure. However, in light of the policy measures that moderated the transmission of the shocks, the level of risk increased only in the macroeconomic channel, as reflected in the increase in the state’s risk premium.
Despite an increase in the difficulties of households in debt repayments against the background of the monetary tightening process that has continued since the beginning of the year and a real erosion of own sources, the amount of credit at risk of households is still low. This, also given the damage to the incomes of a certain part of the households as a result of the war, which may increase their difficulty in servicing the debt.
The consequences of the war on the activity of the construction companies increased the credit risk from this industry, and this in addition to the increase in financing expenses that had a negative effect on the financial situation of the companies even before the war, as the financial stability report for the first half also indicated.
The security cushions accumulated on the eve of the war by the financial institutions and policy measures taken in order to help households and businesses deal with the consequences of the war, continue to moderate the impact of the shocks on the financial system and maintain its stability.
The bank’s economists also wrote that as the duration of the war, its scope and its negative consequences on the economy intensify, additional challenges are expected for the financial system.
The Bank of Israel’s financial stability report is published twice a year. In this report, the bank’s economists express their assessment regarding the exposures to the main risks faced by the financial system, analyze the main exposures and evaluate potential risk scenarios.
The evaluations and analyzes are based on the review of the developments in the reviewed period, the examination of the structural changes, the use of analytical models and the evaluation of the background conditions in the global and local economies. The report describes the impact of the realization of risk scenarios on the financial system in the short and medium term, with the aim of increasing awareness of them among policymakers and the general public and enabling appropriate preparation.
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