Israel's Non-Bank Credit Market Swells, Fueled by Banks

Israel's non-bank credit market is experiencing significant growth, with outstanding loans reaching approximately 84 billion shekels by the end of 2025, according to data from the Capital Markets Authority. The real estate sector alone accounts for over 40 billion shekels of this, primarily in loans to developers and contractors (29.6 billion shekels) and mortgages for individuals (10.9 billion shekels).

This expansion is largely driven by real estate developers facing low sales and rising construction costs, forcing them to seek additional financing. While bank loans to developers have surged by 40% in the past year, a significant portion of non-bank credit is indirectly sourced from the very banks that have reached their lending limits. Non-bank lenders raise about 60% of their capital (61 billion shekels) from banks, which classify these as financial loans rather than real estate exposure, circumventing regulatory limits.

Bank of Israel Governor Professor Amir Yaron has expressed concern, stating the central bank is monitoring the gap between credit utilization and sales. He warned that if this tension continues to rise, the bank has tools to intervene. The current system, where banks lend to non-bank entities that then lend to real estate projects, creates a potential double risk: direct exposure to failing projects and indirect exposure if non-bank lenders default on their bank loans.

This situation is highlighted by companies like Mimun Yashir, which has seen a significant increase in its mortgage business, funded by bank loans. The article suggests that if more contractors collapse, the perceived safety net of credit diversification could prove to be an illusion, potentially impacting the banking system through both direct and indirect channels.

In a separate development, the departure of Moshe Gafni from his influential role as chairman of the Knesset Finance Committee is expected to pave the way for stalled real estate reforms, particularly concerning taxation and investor appetite. Additionally, Israelis continue to rely heavily on banks for trading securities, despite higher fees compared to investment houses, resulting in substantial profits for banks from these transactions.