Bank Exposure to Real Estate Developers Reaches 511 Billion Shekels
Leader Capital Markets warns that bank exposure to real estate developers has surged to 511 billion shekels amid a slowdown in apartment sales, raising systemic risks.
Leader Capital Markets warns of a growing gap between weakness in apartment sales and a surge in financing for developers and contractors. According to a review published by the investment house, bank exposure to the sector reached 511 billion shekels, with total credit expanding by more than 100 billion shekels within a single year.
Alon Glazer, banking and insurance analyst at the investment house, asserts that the more banks continue to expand credit, the greater the potential future fallout. The injection of credit by banks and non-bank financing companies is accelerating against the backdrop of a slowdown in apartment sales within the real estate market. Leader warns that this dynamic elevates systemic risk.
Skyrocketing Exposure to Developers
Central to Leader's concern is the pace of credit expansion. The review indicates that banks' risk assets vis-à-vis developers and contractors—comprising credit and guarantees—surged by 79 billion shekels over 12 months to reach 511 billion shekels. By comparison, at the end of 2020, this figure stood at just 220 billion shekels, meaning exposure has more than doubled in less than six years.
Beyond the banking sector, Leader estimates that the credit portfolio extended to developers and contractors by insurance companies using Nostro funds is approaching 20 billion shekels. Simultaneously, institutional bodies have injected tens of billions more from policyholder funds. Public non-bank credit companies expanded their sector lending by roughly 4.5 billion shekels over the past year to reach about 20 billion shekels, while private firms contribute an estimated 5 to 10 billion shekels.
"The probability of seeing risks materialize has increased significantly," writes Alon Glazer of Leader Capital Markets, pointing to falling sales, lower prices, and a substantial inventory of unsold apartments.
High Current Profits vs. Hidden Risks
Despite the sharp tone of the report, Leader does not claim that the construction sector is currently experiencing a credit crisis or that building firms face imminent collapse. In fact, the review characterizes the current trend as a high-yield growth engine for banks, generating elevated profitability without requiring significant provisions for credit losses.
The Supervisor of Banks currently views the sharp credit growth without immediate alarm. However, analysts emphasize that risks are accumulating beneath the surface, raising questions about whether banks can sustain such momentum while the housing market weakens.
