JERUSALEM, Jan 22 (Reuters) - Israel’s financial system remained stable in the second half of 2017, with the main risk coming from exposure to the housing market, the Bank of Israel said on Monday.
Factors contributing to the continued improvement, strength and stability of the banking system are mainly a strong economy and various macroprudential measures taken by the Bank of Israel, it said in its semi-annual financial stability report.
“The housing market, household leverage, and the asset market are the main areas where we identify exposure to risk for the Israeli economy,” the report said.
It added that “the intensity of the exposure to the housing and asset markets remained medium-high” in the July-December period while exposure to consumer credit was medium.
Still, with the global economy improving and financial markets abroad more stable with a decline in volatility, the short-term risks to Israel’s banking system originating abroad declined in the second half, the central bank said.
It noted that the low interest rate cycle has reduced the costs of financing and made it easier to service debt, although the low rate environment also increases the risk appetite.
Other potential risks to the system include a slowdown in economic activity as a result of a shock to demand from abroad or as a result of geopolitical events, a sharp and rapid decline in housing prices, and a reversal of the trend in the global financial markets.
“In our estimation, the likelihood of these risks being realized in the short term is low or medium,” the central bank said, noting that the potential vulnerability of the economy was unchanged at a medium level in the second half. (Reporting by Steven Scheer; Editing by Toby Chopra)