Download The Measurement and Disclosure of Impaired Debts, Credit Risk and

BANK OF ISRAEL
Office of the Spokesman and Economic Information
PRESS RELEASE
August 3, 2011
The following is an excerpt from the 2010 Banking System Annual Survey which
will be published shortly: The Measurement and Disclosure of Impaired Debts,
Credit Risk and Allowance for Credit Losses
On January 1, 2011, a Supervisor of Banks directive, "The Measurement and
Disclosure of Impaired Loans, Credit Risk and Allowance for Credit Losses (“the
Directive”) went into effect. This directive brings the Directives for Reporting to the
Public, applicable to banking corporations and credit card companies in Israel, into
line with the issue's regulations applicable to the banking systems in the US and in
other major economies. Below are figures which show the effect on Israel's five major
banking groups of the initial implementation of the directive as of January 1, 2011,
based on the data included in their financial statements as of March 31, 2011. Due to
the complicated nature of the directive, the Banking Supervision Department decided
that it will not be implemented retroactively on financial reports from previous
periods. As such, the following figures do not include comparison data.
1. Allowances for credit losses
As a result of the implementation of the directive, allowances for credit losses in the
banking system increased by about NIS 4 billion1. Additionally, as a result of its
implementation, the banking corporations recorded significant loan write offs, for part
of which NIS 23 billion had previously been included in allowances (Table 1). As a
result, the ratio of the allowance for credit losses to total credit to the public reached
2.1%, of which 1.1 percentage points was for allowances on an individual basis, and 1
percentage point of which was for allowances on a group basis (Table 2).
Table 1
The directive's effect on the allowance for credit losses for loans and off balance sheet items
The five major banking groups (NIS million )
Leumi
Allowance for credit losses, as of December 31, 2010
Cumulative write offs, as of January 1, 2011
Other changes in the allowance, as of January 1, 2011
Allowance for credit losses, as of January 1, 2011
1
Hapoalim
Discount
MizrahiTefahot
First Int'l.
The five
groups
10,541
-5,840
1,074
5,775
11,589
-7,712
1,677
5,554
6,384
-5,543
1,382
2,223
3,607
-1,891
919
2,635
2,836
-2,236
432
1,032
34,957
-23,222
5,484
17,219
Change in the allowance for credit losses (exc. write offs)
10.2%
SOURCE: Reports to the Banking Supervision Department.
14.5%
21.6%
25.5%
15.2%
15.7%
The figure is the net increase, net of the effect of tax adjustment of NIS 1.5 billion.
Table 2
Credit to the publica, and the allowance for credit losses, as of January 1, 2011
The five major banking groups (NIS million )
Leumi
Credit to the public
Allowance for credit losses
Share of allowance for credit losses out of credit to the public
Hapoalim
MizrahiTefahot
Discount
First Int'l.
The five
groups
229,626
5,378
2.3%
229,222
5,013
2.2%
119,386
2,068
1.7%
108,832
2,454
2.3%
64,047
941
1.5%
751,113
15,854
2.1%
3,233
1.4%
2,938
1.3%
461
0.4%
1,060
1.0%
404
0.6%
8,096
1.1%
2,145
0.9%
2,075
0.9%
1,607
1.3%
1,394
1.3%
537
0.8%
7,758
1.0%
of which:
Allowance for credit losses on an individual basis
% of credit to the public
Allowance for credit losses on a group basis
% of credit to the public
a Before allowance for credit losses
SOURCE: Financial Statements.
2. Equity
Following the coming into effect of the directive on January 1, 2011, the equity of the
five major banking groups decreased by about 4% (Table 3). All banking groups still
have capital adequacy ratios above 12%, and all of them, except Discount group, have
a core capital ratio above 7.5%. The drop in the capital adequacy ratio ranged from
0.27 percentage points at the Leumi group to 0.56 percentage points at the Discount
group, and the decline in the core capital ratio ranged from 0.27 percentage points at
the Leumi group to 0.59 percentage points at the Discount group (Table 4).
Table 3
Effect on equity, as of January 1, 2011
The five major banking groups (NIS million )
Leumi
Equity, as of December 31, 2010
Change in equity
Percentage change in equity
23,985
-721
-3.0%
Hapoalim
Discount
23,426
-807
-3.4%
MizrahiTefahot
11,569
-830
-7.2%
First Int'l.
7,591
-357
-4.7%
6,205
-220
-3.5%
The five
groups
72,776
-2,935
-4.0%
SOURCE: Financial Statements.
Table 4
Effect on capital adequacy, as of January 1, 2011
The five major banking groups: Before and after implementation of the directive
Before
Leumi
After
Hapoalim
Before
After
Before
Discount
After
Mizrahi-Tefahot
Before
After
First Int'l.
Before
After
The five groups
Before
After
Core tier 1 capital ratio
8.6
8.3
8.2
7.9
7.9
7.3
8.0
7.6
8.1
7.8
8.2
7.9
Capital adequacy ratio
15.1
14.8
14.1
13.8
13.7
13.1
14.1
13.6
12.5
12.1
14.2
13.9
SOURCE: Financial Statements.
3. Problem loans
Based on the new definitions of problem loans, the share of impaired credit (not
accruing interest) to the public, out of total credit to the public of the five major
banking groups, as of January 1, 2011 reached 3.6%; the share of loans to the public
that are past due 90 days or more out of total credit to the public was 0.7%; and the
share of commercial credit risk exposures to the public out of total credit risk to the
public was 3.9% (Table 5).
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Table 5
Data on problem loans, as of January 1, 2011
The five major banking groups (NIS million )
The five major banking groups
( NIS million )
Leumi
Hapoalim
Discount
MizrahiTefahot
First Int'l.
The five
groups
Non-performing loans to the public
Ratio of non-performing loans to loans to the publica
8,904
3.9%
10,887
4.7%
3,359
2.8%
2,318
2.1%
1,219
1.9%
26,687
3.6%
Impaired and performing loans to the publicb
Ratio of impaired and performing loans to loans to the publica
43
0.0%
271
0.1%
2,491
2.1%
61
0.1%
109
0.2%
2,975
0.4%
Total impaired loans to the public
Ratio of impaired loans to loans to the publica
8,947
3.9%
11,158
4.9%
5,850
4.9%
2,379
2.2%
1,328
2.1%
29,662
3.9%
Credit to the public past due 90 days or more
Ratio of credit past due 90 days or more to loans to the publica
1,105
0.5%
1,326
0.6%
891
0.7%
1,810
1.7%
352
0.5%
5,484
0.7%
14,534
15,372
8,307
3,869
2,426
44,508
4.2%
4.0%
5.8%
2.5%
2.5%
3.9%
Problem commercial credit risk to the public
Ratio of problem commercial credit risk to the public to total credit risk
to the public
a.
Gross credit to the public
Impaired credit to the public after reorganization of problem debts which accrue interest
c.
Includes balance sheet and off balance sheet credit risk which is impaired, substandard, or under special supervision,
excluding balance sheet and off balance sheet consumer credit..
SOURCE: Financial Statements.
b.
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