June 27, 2018 / 9:38 AM / 10 months ago

Israel financial system stable but housing stays top risk -cenbank

JERUSALEM, June 27 (Reuters) - Israel’s financial system remained stable in the first half of 2018, with exposure to the housing market the “most conspicuous vulnerability,” the Bank of Israel said on Wednesday.

The stability of the financial system is supported by a strong economy and a positive business cycle, the central bank said in a semi-annual financial stability report.

It noted that a slowdown in the housing market had hurt companies in the residential construction industry, with sales down and an increase in the stock of unsold homes. But the effect on banks was currently minimal.

“Stress tests that were examined for variables such as home prices, sales and interest rates show that the effect on the financial leverage and immediate liquidity of the companies is significant only at the extreme values, while the effect is relatively slight at the lower values,” the central bank said.

At the same time, it pointed to the end of a long period of “almost constant price increases” in global and Israeli financial markets with higher volatility due to monetary tightening by central banks.

“The increasing volatility and the tendency toward price declines on foreign markets ... as well as the marked declines of (bond) spreads in recent years, increase the likelihood that the recent increased yields are the beginning of change in trend in the global financial markets, which may worsen and have an impact on the domestic capital markets,” it added.

The report also said that most industries in the business sector have improved, reflected in improved financial ratios. Banks have also improved the quality of credit portfolios while recording higher than required liquidity coverage ratios.

Israel’s economy is forecast to grow about 3.5 percent in 2018 after a 3.3 percent pace last year. (Reporting by Steven Scheer Editing by Peter Graff)

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