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efforts were invested mainly in setting the framework for entering the market and the
activity of such credit providers.
Trends in the Large Businesses Credit Sector
Alongside raising debt in the capital markets, the main participants in the credit market
for large businesses are the banks and institutional investors. This market segment is
relatively competitive, entailing lower margins.
The banking sector experienced changes over the past year as it continued its
preparations for the higher capital requirements stemming from the adoption of the
Basel III regulations. These changes include:
• An expansion of the variety and volume of risk transfer transactions, including a
major increase in the volume of secondary market transactions, banks selling loans
and expanded syndication activity. We have also seen the introduction of innovative
transactions into the Israeli market, including derivatives such as CDOs, CLNs and
different types of insurance transactions, including the sale of mortgage portfolios to
institutional investors.
• A suspected credit crunch in the banking sector, mainly with respect to larger
borrowers and revolving facilities. Borrowers face tougher barriers when seeking
short term loans or revolving facilities and other types of credit. This trend is already
changing gradually and is expected to change further during 2017.
• The shrinking credit portfolios in segments of the banking sector provide an
opportunity for the institutional investors' private loans market. The volume and
variety of such loans have increased in the past year. However, many large Israeli
borrowers are accustomed to using revolving facilities as a long term financing tool,
and since the institutional investors are not typically participating in providing such
short terms facilities, borrowers in need of constant revolving financing either vary
their finance structure to include longer term loans or seek other alternatives.
Such changes may lead to a more balanced finance market for large businesses, where
the banks focus on shorter term credit, as well as organizing andmanaging syndications,
and institutional investors will further expand their traditional role as providers of longer
term credit and further expand their participation in bank managed syndications.
Trends in the Consumer and SME's Credit Sector
The consumer and SME's credit sector has been changing. Firstly, the institutional
investors have been slowly entering a sector previously virtually dominated by the banks.
Institutional investors use two main channels: the purchase of equity stakes in non-bank
lending companies (being companies that engage in lending but are not licensed banking
corporationsor institutional investors); andcooperationwithbanks,drivenbygovernmental
incentives and guarantees, to provide loan facilities to SMEs. Here, the bank provides the
operational platform and the institutional investor participates in the funding.
Secondly,major regulatory efforts are beingmade to boost competition in the consumer
and SME’s credit sector. Notwithstanding the growing credit market and the increased
lending by institutional investors, financing is mainly accessible to large businesses
as the institutional investors have limited operational resources required to serve the
consumer and SME's credit sector.
This situation caused consumers and SMEs to be virtually dependent on the highly