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Market
Trends and
Insights
The Israeli banking and finance sector has been the focal point of regulatory and popular
attention in recent years, following the markets crisis in 2008 as well as local defaulting
debtors with high public exposure.
It is worth pointing out that the credit defaults that drew much public and regulatory
attention had a relatively limited effect on the composition and profitability of the public
savings but the actual influence of the defaults on the regulatory side were significant.
The economic conditions, increasing appetite for risk appetite and regulatory
inconsistency combine to support a thriving and diverse market, where the balances of
yield and risk change among different types of lenders, and the structure and form of
transactions may be influenced by the regulatory requirements that apply to different
lenders.
Banking sector participants and competition
Large Borrowers and Loans
In this segment, credits are offered by banks, institutional lenders such as insurance
companies and provident funds, as well as leverage funds and other investment funds
and other lending firms (focusing mostly on short term lending). All of these players
compete with the capital markets, which offer – for suitable borrowers – an opportunity
to raise debt on competitive terms.
The introduction of private lending services by institutional lenders was, unsurprisingly,
not welcomed by the local banks. Banks have rightfully pointed out the inconsistent
regulation,which imposes greater,andmore costly,requirements on banks in comparison
to the regulation facing institutional lenders. It is fair to say, that although the regulatory
requirements applicable to institutional lenders have been developing, it has not reached
the level of the regulation imposed on the banks. In addition to the unfairness of this
regulatory inconsistency, it has been implied that it resulted in institutional loans being
inferior in their quality to bank loans. This implication is doubtful. However, it is evident
that private loans, whether originated by banks or by institutional investors, have been
relatively more secured and incurred lower losses than capital markets debt (publicly
Formanyyears,the roleof extendingcredit tobusinesseshasbeenconcentrated
in the local banking sector. Although this remains true for consumer loans, this
is certainly not the case today for the corporate market.