Background
In May 2020, the Israeli Supervisor of Banks formulated an outline allowing customers to defer bank loan payments in order to help them cope with the economic difficulties created by the COVID-19 pandemic. Under this framework, from March to mid-November 2000, borrowers deferred payments on 180,000 mortgages and 480,000 consumer loans, totaling approximately NIS 5.3 billion in deferred payments.
Goals
This study examines the characteristics of borrowers who deferred payments with the goal of understanding their ability to make loan repayments after the end of the pandemic.
Methods
The data were collected in two online surveys. The first was conducted on behalf of the Myers-JDC-Brookdale Institute in August 2020 and surveyed 1,501 people aged 25–70 from the Jewish population in Israel. The second was conducted on behalf of the Bank of Israel in December 2020, and surveyed 1,216 people aged 18-75, including respondents from both the Jewish and Arab populations.
Findings
The main finding of the study is that mortgage borrowers who deferred payments possessed characteristics of high-risk borrowers even before the pandemic began. In particular, compared to the general population of mortgage borrowers, they were more likely to have lower incomes (according to the August 2020 survey, 43% of borrowers who deferred payment had below-average incomes compared to 30% of all mortgage borrowers) and less education (33% of borrowers who deferred payment had a high school degree or less compared to 20% of all mortgage borrowers). They were also more likely than the general population of borrowers to come from the Arab population and to have faced difficulty covering their monthly payments even before the pandemic.
Insights and Policy Recommendations
The borrowers who deferred their loans were more likely to be borrowers for whom the pandemic exacerbated existing economic situations, and not households who were only temporarily harmed just by the pandemic and the economic crisis. Because these borrowers were high-risk borrowers even before the pandemic, policy makers should be concerned about their ability to repay their loans even if the economy recovers to its pre-pandemic condition. However, the increased probability that these borrowers may experience difficulty repaying their loans is not expected to lead to a significant shock to the banking system. First, the proportion of borrowers who are still deferring payments has dropped significantly and is currently just a few percent. Second, the rate of default on loans in Israel has been very low historically, even among riskier borrowers. Nevertheless, the Supervisor of Banks should monitor borrowers who deferred loan repayments during the pandemic and be attentive for signs that these borrowers may be experiencing difficulty repaying their loans.
For MJB’s publications on the COVID-19 pandemic in English, press here.
For MJB’s publications on the COVID-19 pandemic in Hebrew, press here.