Bank of Israel, retail banks take steps to soothe virus damage to economy
Financial institutions seek to ease business and consumer hardship by buying bonds, offering loans, delaying mortgage payments
Luke Tress is a JTA reporter and a former editor and reporter in New York for The Times of Israel.
The Bank of Israel on Sunday said it would take a series of policy measures to mitigate damage to the economy caused by the coronavirus pandemic.
The bank will be buying government bonds and offering repo transactions to Israeli financial institutions, using government bonds as collateral. The bank did not specify the size of the planned transactions, only saying it would buy bonds “in the necessary quantities.”
The bank will buy various types of bonds, at different maturities, on the open market.
The move is intended to increase liquidity and decrease volatility in the markets as spending is curtailed by closed businesses, limited movement, consumer fears and plummeting equities.
The bank said it was responding to high volatility in financial markets in Israel and abroad and that the measures will support price stability, government economic policy and Israel’s financial system.
The bank will continue to monitor the situation and will take further action if necessary, it said.
“The coronavirus is meeting the economy at a very good place. The strong economic data — including a low debt to GDP ratio and low unemployment rate, a current account surplus, a high level of foreign exchange reserves, and a robust financial system — increase the economy’s resilience to the developments,” Bank of Israel governor Amir Yaron said.
“The Bank of Israel is acting to minimize the negative impact to businesses and to the public, so that we can weather this period calmly, with as little economic damage as possible,” he said.
It will be the first time the bank takes action in the bond market since 2009’s global recession. The decision followed discussions by the bank’s Monetary Policy Committee on Saturday and Sunday.
Additionally, Israel’s banks will adjust policy to support the business sector and general public following a request from the Bank of Israel. The banks’ newly announced regulatory leniencies are aimed in particular at small and mid-sized businesses, which rely heavily on bank credit.
The banks will offer a delay in mortgage payments for a few months, loans to small and mid-sized businesses that are seeing liquidity problems, expanded digital services for remote transactions, and courier services for customers in quarantine.
Israeli banks will individually offer the benefits to their own customers based on their own business and operational considerations. Credit will still be provided on a case-by-case basis according to risk assessments.
The Bank of Israel’s Supervisor of Banks, Heva Ber, said: “The banking system in Israel is strong, and thanks to that, it is prepared to support and assist its customers at this time. The banks are facing this event with surplus capital, high liquidity ratios, and a credit portfolio that is of high quality and diversified among many borrowers.”
“There is no concern over a negative impact to essential banking services, and the banking system is prepared to continue providing banking services even if the situation worsens significantly, and there are greater restrictions on movement,” Ber said.
The banks are expected to announce additional measures in the coming days, including easing policies on loans, credit, remote transactions, and ATM cash supplies.
Yaron said last week that the Bank of Israel expects only a minor hit to the economy, and an end to the crisis by July. Yaron gave no indication that the bank would cut interest rates, but recommended that banks make credit more available. Israel’s banks have some NIS 14 billion (some $4 billion) in surplus capital, he said.
Earlier this month, the US Federal Reserve slashed interest rates in a dramatic move meant to buoy markets after a historic decline in US equities.
Israel’s current interest rate stands at 0.25 percent. The bank is scheduled to make the next rate announcement on July 1, but could cut rates before then. The Bank of Israel last changed its lending rate in November 2018, but has been known to follow the Fed’s lead.
Meanwhile, the Finance Ministry and the Tax Authority decided on Sunday to postpone required VAT payments by 10 days, from March 16 to March 26.
On Saturday night, Prime Minister Benjamin Netanyahu and government officials announced the shutdown of all leisure businesses and activities throughout the country, with the premier pressing upon the public the need to “adopt a new way of life” for the coming weeks and possibly months as the country deals with the new coronavirus — and particularly underlining a guiding principle of individuals maintaining a distance of at least two meters from others at all times.
Sunday morning saw public life diminished, with the closure of all cafes, restaurants, hotels, malls, movie theaters, gyms, event halls and the like. It was implied, though not specifically stated, that all nonessential shops would close. But Netanyahu stressed that supermarkets, pharmacies, banks and other essential service providers would continue to function.
The Finance Ministry reportedly predicted that the partial shutdown would cost the economy some NIS 11 billion ($3 billion) in six weeks.
The outbreak could shrink Israel’s economic growth for the year by one to two points, from a pre-crisis prediction of 3% growth, the Finance Ministry estimated.
The ministry’s chief economist, Shira Greenberg, estimated that the shutdown would cost NIS 4.5 billion ($1.2 billion) if it were to last only three weeks. The lower number is based on the assumption that employers will fire fewer workers at the beginning of the crisis.
Following the announcement, Israeli retailers immediately placed thousands of workers on unpaid leave. Restaurants will be allowed to continue offering take out and delivery. The construction sector is expected to remain largely unaffected by the directives.
Last week, the government announced an emergency economic package of more than NIS 10 billion ($2.8 billion) stabilize the economy and offset some damage caused by the virus outbreak.
Some NIS 8 billion ($2.2 billion) will be dispersed to businesses, NIS 1 billion ($281 million) to the health system, NIS 1 billion to stem the spread of the virus, and an unspecified amount would go to the aviation industry, Prime Minister Benjamin Netanyahu said.
Israel has confirmed 213 infections as of Sunday evening, and no deaths. Tens of thousands have been confined to quarantine.
