(Bloomberg) -- Israel’s central bank met senior officials from local lenders on Wednesday to discuss their exposure to the construction and real estate sectors.
The Bank of Israel “once again stressed to the participants the need for careful risk management during this period,” the monetary authority said after the meeting. It “detailed its requirements from the banks” in terms of “an up-to-date risk assessment in this field.”
Fighting against Hamas in Gaza and Hezbollah in Lebanon over the past year, as well as high tensions with Iran, have taken a big toll on the Israeli economy, especially the construction industry. On Tuesday, the finance ministry cut its projection for economic growth this year from 1.1% to just 0.4%.
The building industry has been hit by a shortage of labor and rising costs for financing and materials. Before the war in Gaza erupted in October last year, one-third of workers on Israeli construction sites were Palestinians. But Prime Minister Benjamin Netanyahu’s government, citing security concerns, has banned around 150,000 Palestinian workers from the West Bank from entering Israel.
It promised to replace them with other foreign workers but so far that’s proved difficult and only 13,000 or so have arrived.
The central bank’s Banking Supervisor Department, whose team was led in the meeting by its deputy, Or Sofer, is not yet restricting lenders’ ability to give money to the real estate and construction sectors. But it is able to order them to increase their provisions for such loans if it wants. It can also ask banks to toughen underwriting standards for mortgages.
Israel’s five largest banks have almost 900 billion shekels ($242 billion) of construction and real estate loans and mortgages.
Banks increased provisions for construction loans last year but the central bank thinks more needs to be done.
Governor Amir Yaron has urged the government to allow more Palestinian workers back into Israel and has spoken of the construction industry’s problems having “macroeconomic importance.”
Last week, Yaron told Bloomberg he expects the conflicts to continue until early next year, but start to ease within about a month.
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