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Bank of Israel stress test shows banks' stability will not be threatened


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Bank of Israel stress test shows banks' stability will not be threatened

A Bank of Israel stress test of the country's banks showed that the stability and resilience of the banking system will not be threatened in the event of a domestic macroeconomic shock.

The latest stress test, carried out in 2018, examined the banks' resilience to a severe domestic macroeconomic scenario resulting from geopolitical events that would lead to an increase in interest rate, along with a major housing crisis and the collapse of a large business group of borrowers.

The central bank said May 19 that the banks' common equity Tier 1 capital ratio is not expected to decline below the minimum required by the Banking Supervision Department in a stress scenario. The banks' capital ratios, which were used by the department to estimate the banks' resilience, in the scenario were also found to be higher than those in previous stress tests.

The central bank, however, noted that the banking system would still be significantly affected and some of the banks will suffer losses.

The main expected losses in the scenario would be in the credit portfolio, amounting to an average of about 12.2 billion shekels a year, or roughly 1.2% of the portfolio. Around half of the banks experienced losses in at least one of the years of the scenario.

The central bank said the results attest to the stability of banks even in an extreme situation and reflect the requirements placed on them in recent years in order to strengthen their capital.

As of May 17, US$1 was equivalent to 3.57 Israeli shekels.