Lider's unusual warning: "The likelihood of risks materializing in the real estate sector has increased significantly"
Lider Capital Markets warns of the gap between weakness in apartment sales and the surge in financing for developers. Bank exposure to the sector reached NIS 511 billion, and total credit grew by more than NIS 100 billion in a year. Analyst Alon Glazer states that as banks increase credit, the future damage could be greater. Lider does not claim a current credit crisis but emphasizes that risks are growing beneath the surface.
Lider Capital Markets warns of the widening gap between the weakness in apartment sales and the surge in financing for developers and contractors. In a review published by the investment house, it is explained that bank exposure to the sector reached NIS 511 billion, and total credit grew by more than NIS 100 billion within a year. Alon Glazer, the investment house's analyst for banks and insurance, states that as banks continue to increase credit, the future damage could be greater. The flow of credit from banks and non-bank credit companies is growing against the backdrop of stagnation in apartment sales in the real estate market. Lider warns that this situation increases risk in the system, and that as bank exposure to the sector continues to grow, so too could the damage if risks materialize. "The likelihood that we will also see a materialization of risks has increased significantly," writes Alon Glazer from Lider. According to him, the assessment stems from the weakness shown by the housing market, which he characterizes by a decline in sales and prices and a large supply of apartments. Glazer adds that "as banks continue to increase credit amounts, the future damage could be greater." The key figure troubling Lider is the rate of credit growth. According to the review, banks' risk assets vis-à-vis developers and contractors, credit and guarantees, grew by NIS 79 billion in 12 months to reach NIS 511 billion. For comparison, at the end of 2020 they totaled only NIS 220 billion. That is, in less than six years, exposure more than doubled. Beyond banks, according to Lider's estimate, the credit portfolio for developers and contractors provided by insurance companies from their own funds is already approaching NIS 20 billion. At the same time, institutional bodies also increased credit from members' funds by tens of billions of shekels. Public non-bank credit companies increased credit to the sector by about NIS 4.5 billion in the past year, to about NIS 20 billion, and private companies provide, according to Lider's estimate, another 5–10 billion shekels. In total, Lider estimates that credit to developers and contractors grew within a year by more than NIS 100 billion and by more than 20%. Lider Capital Markets is an investment banking, underwriting, brokerage, and research company that works, among others, with the largest institutional bodies in Israel. Glazer covers the capital market and the banking and insurance sectors. He previously managed Lider's research department and was a senior analyst before joining the company. The review is part of Lider's research work in the capital market and is intended mainly for investors and professional and institutional clients who follow the companies and sectors under review. Lider itself presents its research platform as a tool serving institutional investors and providing sector analysis for investment purposes. Despite the unusual tone, Lider does not claim that the construction industry is currently in a credit crisis or that construction companies are facing collapse. In fact, the review argues that this is a "start-up" for the banks, i.e., increasing credit at high interest rates without recording provisions for credit losses. That is, the result currently is high profitability in banks. However, Lider asks whether it is possible to continue increasing credit at such a pace and continue recording almost zero provisions while the housing market weakens. According to the review, at this stage the Supervisor of Banks also does not see the sharp increase in credit as a rise in risk that justifies intervention. But as mentioned, risks are growing beneath the surface and the potential for risks has increased significantly.