How Long Can Banks Keep Rolling Over Real Estate Debt?
The article examines how long Israeli banks will keep extending credit to struggling real estate developers instead of forcing losses. The clearest recent example was Bank Leumi’s November 2023 decision to abruptly stop financing Hanan Mor, demand immediate repayment of loans used to buy land at the entrance to Haifa and at Tel Aviv’s Sde Dov, and then seek a receiver. At the time, bank lawyers said the move came “only after all the end-of-the-line had been reached,” citing the company’s and Hanan Mor’s prolonged misconduct.
More than two and a half years later, apartment sales have still not recovered and construction costs keep rising. The broader question is why Hanan Mor is treated as the exception rather than the rule, while many other developers have weak sales and huge debt yet continue operating. The article argues that banks prefer not to recognize losses as long as a project is still alive, even if only artificially, because they can keep charging interest, mark the loan as risky and wait for conditions to improve.
It also points to incentives created by the legal cap on bankers’ pay imposed about a decade ago. Senior bank executives now earn about 3.5 million shekels a year, and the author says the rule has increased turnover, shortened planning horizons and encouraged managers to focus on the next job rather than long-term credit risk. In 2025, off-balance-sheet credit to construction and real estate rose 14% to 366 billion shekels, with Bank of Israel saying the jump was driven mainly by a 40% increase in financing for residential projects amid slower transactions and deferred-payment sales campaigns.
Household mortgages are also still expanding, reaching 660 billion shekels in May, compared with 415 billion five years ago. Mזרחי טפחות CEO Moshe Larry said Israel will end 2026 with 110 billion to 120 billion shekels in new mortgages, after 106 billion in 2025. The article says banks’ profits have surged because of higher interest rates, even though those same rates make borrowers more likely to struggle. It notes that real estate and bank shares have recently fallen together, with both sectors down 11% and 8% respectively since the start of the month, suggesting they are in the same boat.
The piece also welcomes a Bank of Israel fee reform taking effect gradually from October, which will cap current-account fees at 10 shekels for 100 monthly transactions and at 5 shekels for accounts with up to two transactions. In a separate item, it says Tel Aviv District Court Judge Hanan Hesez dismissed a petition seeking to force Ramat Hasharon to enforce its bylaw against Big Glilot on Saturdays, saying the issue is political and social and may be decided in the public sphere or through elections.
