Israeli Banks Tighten Real Estate and Corporate Credit Spreads in Q3

Israeli banks reported tighter credit spreads in the construction and real estate sectors and among large businesses in the third quarter of 2026, alongside a continued decline in demand for business credit. This was revealed in the credit officer survey published on Thursday by the Bank of Israel. Banks expect the drop in credit demand in construction and real estate to persist into the fourth quarter.

Tightening in Construction and Real Estate

The tightening in the construction and real estate sectors was recorded in both credit classified as risky and non-risky credit. This marks an expansion compared to the previous survey covering the second quarter, which reported an escalation in high-risk credit spreads for these sectors alongside easing in non-risky credit across most segments. The credit spread is the margin a bank charges above the benchmark interest rate; tightening it can make financing more expensive even when the base rate remains unchanged.

The findings illustrate that changes in financing conditions depend on the size of the business, the sector in which it operates, and the risk attributed to the loan.

Divergence by Business Size and Household Trends

The picture is not uniform across business types. While large businesses reported tightening, micro, small, and medium-sized enterprises experienced an easing of spreads on non-risky credit.

• Demand for mortgages remained unchanged in the third quarter.

• Consumer credit demand stabilized after a growth spurt in the second quarter.

• Competition continued to drive easing in non-risky consumer credit spreads.

For real estate investors, the combination of falling credit demand and tighter pricing raises questions about financing costs and project pacing. However, the survey reflects aggregate bank reports rather than actual loan volume changes.