Bank of Israel Announces Plan to Freeze Loans and Ease Fees in Wake of Conflict with Hamas

Bank of Israel has unveiled a comprehensive plan aimed at providing financial relief to the public in the wake of ongoing regional conflict. This plan, set to be in effect for at least three months, divides the population into two groups with varying levels of support.

Group One:

This group encompasses individuals living within a 30-kilometer radius of the Gaza Strip, those who have been evacuated from their homes, individuals with first-degree connections to the murdered or missing, and reserve population members recruited under Order 8. Members of this group will benefit from the following provisions:

1. Deferred Mortgage Payments: Homeowners in this category will be granted a temporary suspension of their mortgage payments for three months. Further extensions will be considered as necessary.

2. Loans of Up to NIS 100,000: Qualifying individuals can access regular loans of up to NIS 100,000 during the relief period.

3. Business Credit of Up to NIS 2 Million: Business owners within this group can access credit for their enterprises, with limits of up to NIS 2 million.

4. No Interest Cost for Postponement: Borrowers in Group One will not incur any interest on their deferred payments.

5. Exemption from Fees: Most areas of banking activity will be fee-exempt for this population, with the exception of foreign exchange and securities operations.

Group Two:

The second group encompasses the rest of the population, and while they can also postpone loans, interest will accrue during the postponement period. This provision is similar to measures implemented during the COVID-19 pandemic.

The estimated cost of these relief measures to the banking system is approximately half a billion shekels.

Bank of Israel Governor Prof. Amir Yaron, Bank Supervisor Danny Khachiashvili, and the heads of the banking system convened a meeting to discuss these measures. The outline was presented ahead of a special meeting of the Finance Committee.

Compared to the previous pandemic-related relief measures, the current situation differs significantly, as the economy is not officially shut down. However, substantial parts of it remain inactive due to restrictions imposed by the frontline command and reserve recruitment. Additionally, there has been a notable decline in demand in various industries, such as fashion and entertainment. The situation is exacerbated by a large segment of the population from the Gaza Strip left without homes and livelihoods.

The interest rate in the Israeli economy, which stands at 4.75%, is substantially higher than the 0.25% rate at the start of the COVID-19 outbreak. Consequently, the cost of loan repayment and mortgages has become increasingly burdensome over the past year and a half. Moreover, the economy has been experiencing a slowdown even before the conflict, primarily affecting small businesses, which now face additional instability due to the war.

On a more optimistic note, banks have maintained stability and enjoyed remarkably high profitability since interest rate increases began a year and a half ago. With a total profit of 24 billion shekels last year, the banks are well-positioned to support the public by easing loans and fees without endangering their financial stability.

This move presents an opportunity for banks to garner positive public opinion, which has been critical of their high profits at the expense of the public. By offering this financial assistance, the banks have a chance to align with the needs of the public and the populations affected by the ongoing conflict.