By Ram Dagan http://www.haaretz.com/hasen/pages/ShArt.jhtml?itemNo=945327&contrassID=1&subContrassID=7
A few months ago Nitzan, a doctoral student at Tel Aviv University, strolled into one of Bank Hapoalim's branches in central Israel ahead of the school year. During the previous year he'd worked as a tutor, but come the summer break, his income vanished. Even before his lips had shaped the word "loan," the clerk had whipped out a table showing interest rates and offered an open loan, for any purpose, at attractive rates. Nitzan wasn't asked for guarantors or an attachment to any savings he might have, nor to drag his mom to the branch. All he had to decide was how much money he wanted to borrow and sign on the dotted line.
At least one might postulate that a student has higher potential for future earnings, but Avi, a married father of two living in Modi'in, says he borrowed tens of thousands of shekels with the same facility to take the family to the States for holiday. He didn't want to go into overdraft, Avi says, adding: "All our friends do this."
It's a new social trend in Israel: after the malls and big-screen TVs, American consumer habits have arrived. From 2002 to 2006, retail and household credit, excluding mortgages, have more than doubled, rising from NIS 37 billion to NIS 76.5 billion, and banking circles estimate that another NIS 20 billion on top of that was lent in 2007.
One reason is that the Bank of Israel forbade the banks to continue letting people sink into overdrafts beyond their credit ceiling, and charge killer interest rates on the excess. So Israelis who couldn't cover their overdrafts had to borrow. That's one thing, but it's another to take a loan to paint the car pink.
Bankers don't see it as a fad. They think their loan portfolios will continue to mushroom merrily on: "Israel's brisk economic growth, 5% to 8% a year, can't explain the developments in retail credit," says one.
Israelis have started to borrow for everything from root canals to canoe rides up the Amazon. Bank Otsar Hahayal manager Zvi Tsahar says they're borrowing mainly to fund foreign travel, used cars, renovations, or to better their housing conditions. He's been at the bank for 16 years and says customers have become used to the idea of borrowing to realize their dreams.
The trend attests to a greater sense of job security and increasing disposable income, and it stands in sharp contrast to the contraction in bank lending to businesses during the last decade. The reason there, however, is simply that companies have started to borrow via the capital market - meaning, they sell bonds to investors rather than tap the banks for financing.
By the way, Israelis are saving: 12.8% of their disposable income, in fact (in 2006), which is a higher figure than Japan's consumers can boast. That figure is higher than it was in 2004-2005, when saving ran at about 11% of disposable income.
Four years ago, only one or two of every 10 bank customers borrowed money to spend. Today, that figure is three out of four. Not only are the banks pushing loans hard, they've changed their attitude and stopped making customers jump through hoops to get a loan, explains one banker. They'll approve a loan on the spot, not make the customer come back. Borrowers don't have to bring guarantors or the deed to their camel any more.
Also, the bankers love salaried workers, not the self-employed. Net NIS 6,000 a month and you can borrow NIS 100,000.
In the United States, this merry borrowing and spending led to tears, and over here, the banks aren't competitive. Big borrowers can haggle over terms, but some Yossi buying a car won't get sweetheart terms from anybody. The average rate of interest on a loan for any purpose is prime +1% or +2%, and that's for prosperous clients. Less prosperous ones have to pay prime +3% or +4%, or even as much as prime +6%. So yes, today it's the bank wooing you, but at the end of the day it's you who has to repay. The kids won't get your flat if you aren't careful: They'll get what's left over after the debts are repaid.