The Bank of Israel published a supervisory update on banks’ credit exposure to the construction and real estate sector, showing that lending by the five large banking groups continued to grow rapidly in 2025 while key risk indicators deteriorated. The Banking Supervision Department said it is continuing to closely track developments, monitor emerging risks across activity segments, and require banks to maintain exacting risk management in line with accepted and sound practices. Construction and real estate credit accounts for about 39 percent of total balance-sheet business credit and about 21 percent of total balance-sheet credit to the public in Israel. Balance-sheet credit to the sector grew by about 14 percent in 2025. Within that, outstanding land credit rose by about 6 percent to around NIS 104 billion, while financial credit for residential construction projects increased by about 40 percent to about NIS 69 billion from about NIS 49 billion at the end of 2024. The update links the higher financing needs to weaker demand for new dwellings, a record stock of unsold new homes, rising construction costs, and developers’ sales campaigns that in some cases involved substantial payment deferrals. The average absorption capacity ratio in residential projects fell by about 12 percentage points to around 58 percent, although it still indicated relatively wide safety margins, and total exposure to projects where engineering execution outpaced sales increased by about 9 percentage points to about 44 percent at the end of 2025.
Bank of Israel 2026-05-12
Bank of Israel highlights rising risk in construction and real estate lending as residential project finance jumps 40 percent
The Bank of Israel said banks’ credit exposure to construction and real estate continued to grow rapidly in 2025 while key risk indicators deteriorated, and it is closely monitoring developments and requiring stricter risk management. Construction and real estate now account for about 39 percent of total business credit, with sector credit up 14 percent, driven by a 40 percent rise in financial credit for residential projects to about ILS 69 billion amid weaker demand, record unsold inventory and higher construction costs.