The expectation of a reduction in financial liquidity by the Bank of Israel has in recent weeks led to an arms race between the banks and the raising of billions of shekels. Last Thursday, Bank Hapoalim completed the public raising phase of two series of bonds totaling NIS 4.9 billion. This is the largest issue ever made by a public company in the local market.
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The issue of Bank Poalim’s bonds, led by Dov Kotler, was made in two series of equal size. The first series included a NIS 2.44 billion raising. The second series raised NIS 2.46 billion. The series is linked to the price index and carries a debt of 0.1% and will also be repaid annually at equal rates between 2022 and 2031. The two issues received a total demand of NIS 7 billion.
Bank Poalim’s record broke an earlier and fresh record of Discount Bank, which held only five days. Discount, led by Uri Levin, raised three debt series worth NIS 4.6 billion. Discount was raised through bonds, commercial securities and deferred promissory notes and a mechanism for absorbing COCO losses. The total demand from the market was NIS 5.8 billion.
The two peak raisings join previous raisings by competing banks in the last two months. Leumi raised NIS 2.3 billion in capital at the end of November. Leumi, led by Hanan Friedman, issued two series of CPI-linked bonds with an interest rate of 0.1%. Mizrahi Tefahot, led by Moshe Larry, raised NIS 3.6 billion in October in index-linked bonds and an interest rate of 0.7%. The fifth largest bank, the international one, will also raise NIS 500 million this week, through linked bonds with a spread of 0.6% over government bonds.
In total, the five largest banks in Israel have raised NIS 15.9 billion in capital in the past two months. This is greater capital than all the capital raised by the banks throughout 2020, in which they raised NIS 14 billion. The banks explain that the fundraising stems from the desire to diversify the bank’s sources of credit, due to the costs of day-to-day management and liquidity needs under future plans.
Beyond the current plans, the banks’ run to the capital market indicates their readiness for the day when the Bank of Israel will stop flowing its liquidity into the financial system. The Bank of Israel regularly operates a number of programs to address liquidity difficulties that have affected the financial system following the corona crisis, to ensure the proper functioning of the credit system and to facilitate credit conditions in the economy.
In addition, by intervening in the market, the Bank of Israel seeks to support economic activity and financial stability. Since the arrival of the corona virus in Israel, the Bank of Israel has significantly increased its intervention in the markets, all in order to prevent credit crunch in the Israeli economy in the face of corona closures. For example, in September 2020, the Bank of Israel transferred NIS 8.7 billion to banks to lend to small businesses. In July 2021, the amount of loans provided by the Bank of Israel to banks had already increased to NIS 40 billion, where it stopped.
In addition, the Bank of Israel has been able to carry out repo transactions with safe bonds for banks. This involves injecting liquidity to banks while providing loans to the banking system at a fixed interest rate for a period of only 0.1% for 3 years. In March 2020, these loans amounted to NIS 5.5 billion. Gradually decrease along the way out of the crisis, when in the current month the amount of loans amounted to half a billion shekels.Since 2022, support and inflows will cease completely.
“In the past year, due to the Bank of Israel’s monetary expansions, the banks have not had to access the capital market,” explains a senior official at one of the major banks. “Banks raise between NIS 4-5 billion annually to provide credit. But the capital flowed into the bank by the central bank and the dramatic increase in the volume of deposits by the bank’s customers outweighed the need to turn to the capital market. “This phenomenon is also occurring outside of Israel.”
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