How are bank loan payments being postponed due to coronavius?
A bank program is intended to help borrowers facing cash flow difficulties caused by the corona crisis, while helping the banks manage their risks.
By LEON HARRISCalculating taxes(photo credit: INGIMAGE)
The Bank of Israel this week updated its comprehensive program for postponing bank loan repayments.BackgroundOn May 7, the bank regulatory section of the Bank of Israel launched a program that was adopted by the Israeli banks to enable their clients to postpone repayments on three types of loans: mortgages, consumer credit and business loans. On July 13, the program was prolonged and expanded.All this is intended to help borrowers facing cash flow difficulties caused by the corona crisis, while helping the banks manage their risks.Between March 1 and September 18 of this year, the banks approved around 739,000 requests to delay loan payments amounting to around NIS 9.5 billion, accounting for around 16% of the banks’ credit portfolio. The number of postponement requests was: 401,000 consumers, 174,000 home borrowers, 157,000 small businesses, and 7,000 other businesses.The government’s decision to impose a second general lockdown has led to mixed consequences for the banks. Their clients face declining income, employment challenges and further difficulty repaying loans.Therefore, the Bank of Israel announced further measures commencing Thursday October 1.MortgagesBorrowers who postponed repayments for up to six months may receive a further postponement to the end of 2020, resulting in a nine-month postponement altogether. Borrowers who did not yet postpone repayments but are now interested in doing so may receive a six-month postponement. It should be noted that such postponements are not at the bank’s discretion regarding both the loan principal and interest. This applies to borrowers who were not delinquent in the two months before the postponement application.Any such postponement is spread over the remaining term of the mortgage, which may result in relatively high repayments when they resume, if the mortgage does not have many years left to run. But the interest rate remains the same as stipulated in the original mortgage agreement, and the bank may not collect a fee for the postponement. The current deadline for requesting a postponement is the end of 2020.
Consumer Loans up to NIS 100,000Borrowers who postponed repayments for up to six months may receive a further postponement to the end of 2020, resulting in a nine-month postponement altogether, provided they were not delinquent on February 28, 2020.Borrowers who did not yet postpone repayments but are now interested in doing so may receive a six-month postponement, even if they were delinquent in the two months preceding their postponement application.Postponement of loan principal is not at the bank’s discretion, while postponement of interest is at the bank’s discretion.Postponed repayments are added to the end of the credit period, subject to computer-system limitations of the bank. Other repayment solutions may be offered if necessary. The current deadline for requesting a postponement is the end of 2020.Business creditPostponement is possible for small businesses with revenues up to NIS 25 million that are affected by the corona crisis, provided they were not delinquent in the year up until February 28, 2020. A further condition is that they are expected to be able to repay the loan after the crisis (This has understandably been criticized as being hard to predict due to the pandemic.) The postponement is for up to six months at the bank’s discretion.Postponed repayments are added to the end of the credit period, subject to computer-system limitations of the bank. Other repayment solutions may be offered if necessary. The current deadline for requesting a postponement is the end of 2020.ReactionsSenior Bank of Israel officials were quick to praise their own initiative! The Bank of Israel governor, Prof. Amir Yaron said, “We are working systematically in a way and to an extent never done before in order to facilitate normal functioning of the economy and financial markets.” The Bank superintendent, Yair Avidan said, “We congratulate the banking system on joining the expansion and extension of the program to help customers in this complicated period, but... it is recommended to utilize this option only after reviewing its necessity and cost.” Comment: Unfortunately, this latter remark does not appear too consistent with the terms of the program, which limits the banks’ discretion when reviewing postponement applications.What should a business do?Businesses large and small should be reviewing their cash flow; level of activity; government grants, especially the fixed cost grants; possible city tax (Arnona) discounts; and global e-commerce over the Internet; among other possibilities. As for taxes, check that your tax installments match reality and how to use any losses.And keep well!As always, consult experienced tax advisers in each country at an early stage in specific cases.leon@h2cat.comThe writer is a certified public accountant and tax specialist at Harris Horoviz Consulting & Tax Ltd.
