Credit Risk by Industry

Bank of Israel Supervision and Regulation Department Policy Fax: 03-5661110 Tel: 03-5640520 528 P.O.B, Tel Aviv-Yafo 61004

9th of Nissan 5774 April 9, 2014 Circular No. 2419-06

To: Banking Institutions Subject: Credit Risk by Industry (Public Reporting Instructions)

1. In October 2012, the Central Bureau of Statistics published the updated Standard Classification of Economic Activities (hereinafter: the 2011 Classification), which replaced the previous classification (hereinafter: the 2011 Classification) and the Standard Classification of Economic Activities (hereinafter: the 1993 Classification). This was done due to the need to periodically review the structure of classification categories, their definitions, and the basic principles of the classification, as well as to incorporate new developments in economic activities and services, and changes in fields of activity on the part of users.

2. The instructions for public reporting on credit risk by industry (hereinafter: the Instructions) are primarily based on the 1993 Classification.

3. In light of the above, the need arose to update the Instructions. Following a consultation committee, the Supervision of Banks Department, in coordination with the Israeli Institute of Certified Public Accountants and the Banking Advisory Committee, hereby amends the Instructions as detailed below:

Amendments to the Public Reporting Instructions

4. The Management Review 'Total Credit Risk by Industry' appendix is amended on a consolidated basis as detailed in the Instructions:

Explanatory Remarks

5. The amendments adapt the Instructions to the 2011 Classification.

Main Changes to the Public Reporting Instructions

6.1. Main changes in disclosure requirements:

6.1.1. A separate disclosure is added for the Mining and Quarrying sector, which is included in Series B in the 2011 Classification.

6.1.2. The existing disclosure for "Electricity, Gas, Steam and Air Conditioning Supply" is updated in accordance with the 2011 Classification as follows:

6.1.2.1. Supply of electricity, gas, steam and air conditioning;

6.1.2.2. Sewerage, waste collection, waste treatment and disposal activities; water supply; sanitation and similar activities. (In Series E of the 2011 Classification)

6.1.3. The disclosure regarding the Information and Communication sector is replaced by a disclosure regarding the Information and Communication Services sector, which includes additional activities such as publishing activities and media production activities. (In Series J of the 2011 Classification)

6.2. Additional changes in the definitions of industries in the various classification methods:

The structure of classification categories, their definitions, and the basic principles of the classification are updated. A review of the main changes between the 2011 Classification and the 1993 Classification, which includes the 2011 Classification, is provided in Section 5 of the Introduction.

Effective Date and Transition Instructions

7. Banking institutions shall implement the amendments set forth in this circular from January 1, 2015, onwards:

7.1. They shall redefine the definitions, controls, and procedures for their cash reporting to comply with the updated public disclosure requirements for supervision and reporting, as well as the principles and definitions of the new 2011 Classification.

7.2. They shall implement the updated controls and procedures.

7.3. They shall update the industry classification for all loans, including the following:

7.3.1. Examining the appropriateness of the industry classification of credit risk for loans in accordance with the updated controls.

7.3.2. Checking that each loan is marked in the bank's books in accordance with the requirements of the public reporting instructions. Even if, according to the definition of