Directives of the Supervision of Banks Department

Fax: 02-6524590 Tel: 02-6552475 P.O.B. 780, Jerusalem 91007

Jerusalem, 2 Adar II, 5773 (2013) February 12

Circular No. 2369-06

To: Banking Institutions and Credit Card Companies

Subject: Reporting to the Banking Supervision Department

Introduction

1. In light of the accumulated experience and the importance of information regarding the recent developments in the Israeli real estate construction market, there is a need for more comprehensive reporting on credit risk in the construction sector as a whole.

2. Following this, a new temporary directive (Directive 888E) has been added to replace Directive 806 (Reporting) with effect from 1.1.2014, covering the construction sector as a whole (monthly).

3. Following the above, the provisions of Directive 809 (Additional Provisions) have been amended, and Directive 801 (Content) has also been updated.

Amendments to the Directives

Directive 809 (Additional Provisions) – Quarterly Additional Provision

4. After line 01, line 02 will be added to Schedule 01: "Credit Risk: Of which - Balance Sheet Credit Risk"

Directive 821 (Monthly Balance Sheet)

5. A new subsection (v) will be added after subsection (iv) (Definitions and Clarifications) in section 5: "'Construction Sector in Israel' – as defined in Directive 831 (Reporting to the Banking Supervision Department) – 'Distribution of Total Credit Risk by Economic Sector'"

6. After line 14, line 15 will be added to Schedule 01: "Balance Sheet Credit Risk: Of which - Construction Sector in Israel" Lines 15 to 26 (old numbering) will from now on be numbered 16 to 27 (new numbering).

Directive 888E (Quarterly Total Credit Risk in Israeli Real Estate Construction)

7. A new directive titled "Directive 888E (Quarterly Total Credit Risk in Israeli Real Estate Construction)" will be added, which includes updates and amendments to Directive 806 (Reporting) (Quarterly Total Credit Risk in Israeli Real Estate Construction). The numbering of this directive also appears in the page numbers indicated in parentheses for the directives included in Directive 806.

8. The report will be submitted on a consolidated basis and at a quarterly frequency.

9. The report will include the following three schedules: 9.1. Schedule 01: Reporting on credit risk to the public in the Israeli real estate construction sector, including credit risk, as specified in the directive, and credit risk in Israeli real estate collateral. 9.2. Schedule 02: Reporting on credit risk to the public in the construction sector in Israel by type of Israeli real estate collateral, as specified in the directive. 9.3. Schedule 03: Reporting on credit risk to the public in the construction sector in Israel by Loan-to-Value (LTV) ratio, as specified in the directive.

Commencement

10. The amendments included in this circular commence on 1.1.2014.

Updating Files

11. The following pages of the "Reporting to the Banking Supervision Department" file are updated:

Page to Insert	Page to Remove
(2/13) [16] 801-1	(8/12) [15] 801-1
*(9/11) [9] 801-2	(9/11) [9] 801-2
*(9/11) [39] 801-3	(9/11) [39] 801-3
(2/13) [50] 801-4	(8/12) [49] 801-4
*(8/12) [10] 809-3	(8/12) [10] 809-3
(2/13) [12] 809-4	(8/12) [11] 809-4
*(1/11) [10] 821-1	(1/11) [10] 821-1
(2/13) [12] 821-2	(4/11) [11] 821-2
*(1/11) [10] 821-3	(1/11) [10] 821-3
(2/13) [11] 821-4	(1/11) [10] 821-4
(2/13) [1] 888E-1-5	---
*(8/12) [4] 897-51	(8/12) [4] 897-51
(2/13) [7] 897-52	(1/13) [6] 897-52

• This page was not updated but was reprinted following the transition to double-sided printing.

Sincerely,

Auriv Sofer Deputy Superintendent of Banks

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Reporting to the Banking Supervision Department

Directive Name	Directive Number	Topics
Content by Subject	801	Content by Topic
	802
	803	Balance Sheet and Off-Balance Sheet Data
	809
	814
	821
	827	Liquidity Risk (Monthly and Quarterly)
	850
	809	Profit and Loss
	810B
	828
	829
	832
	850
	855
	856	Capital
	838	Capital Adequacy Measurement (Quarterly)
Credit Card Credit	806
	888E	Credit in the Construction Sector (Monthly) (Effective 1.1.2014)
	810A
	810C
	810D
	810E
	822	Data for Calculating Effective Cost (Monthly) Indexed to CPI
	831
	869	Credit Cards (Quarterly)
	876	Mortgage Activities
	877
		Public Financial Report of Banking Institutions and Credit Card Companies (Annual/Quarterly)

Content by Topic

| Content by Topic | Directive Number | | :--- | :--- |
| (Monthly) Balance Sheet | 801-1 | | (Monthly) Derivatives | 801-2 | | (Quarterly) Additional Provision for Loans | 801-3 | | General Guidelines | 801-4 | | Reporting Tables | | | (Quarterly) Additional Provision for Loans | 809-3 | | (Quarterly) Credit Exposures | 809-4 | | (Quarterly) Borrowers with Off-Balance Sheet and Foreign Currency Credit Risk | 821-1 | | (Quarterly) Distribution of Total Credit Risk by Economic Sector | 821-2 | | (Annual/Quarterly) Public Financial Report of Banking Institutions and Credit Card Companies | 821-3 | | (Quarterly) Credit for Financing Acquisition of Control Means | 821-4 | | (Quarterly) Large Credit Exposures | 888E-1-5 | | (Annual) Profit and Loss | 897-51 | | (Monthly) Credit in the Construction Sector | 897-52 | | (Quarterly) Sectoral and Geographic Activity | | (Monthly and Quarterly) Estimated Impact of Theoretical Changes on Profit and Loss | | (Quarterly) Profit and Loss | | (Monthly) Loans for Housing | | (Monthly) Interest Rate Information - Loans for Housing | | (Quarterly) Fees for Banking Services | | (Quarterly) Fees for Credit Card Services |

Directive Name	Directive Number
(Quarterly) Off-Balance Sheet Branches	846
(Quarterly) Credit Cards	850
	855
	856
(Quarterly) Credit Cards	865
	869
	870
	876
	877
(Monthly) Credit in the Construction Sector (Effective 1.1.2014)	888E
	896
	897-1
	897-4
(Monthly) Loans for Housing
(Monthly) Interest Rate Information - Loans for Housing

Appendix 'G' - Updates Key Appendix 'B' - Key for Replacements of Original Circulars and Letters Appendix 'A' - List of Banking Institutions

Content by Subject (Continued)

Directive Number	Content by Subject
	(Quarterly) Investments in Real Entities and Others by Banks for Business Promotion
	(Annual/Quarterly) Public Financial Report of Banking Institutions and Credit Card Companies
	(Annual Semi-Annual) Branch Breakdown
	(Quarterly) Sectoral and Geographic Activity
	(Annual) Profit and Loss

Additional Provisions - Page 809-4

Report on Additional Provisions (In Thousands of NIS)

Schedule 02
Sector	01	02	03	Total Liabilities
Additional Information on Specific Sectors Due to Sectoral Concentration
Other Construction Sector
Total

Of which:	01	02	03	Total
Total Sectoral Liability
Balance Sheet Credit Risk: Of which
1. Bank Guarantee for Housing Delivery (Before)	50% - (b) 2 (Paragraph 1)
2. Bank Guarantee for Housing Delivery (After)	20% - (a) 2 (Paragraph 1)
3. Deductions: State Guarantee
4. Bank Liability on Credit Not from Banks (Plus 20%)
5. Deductions: Excess Capital (Section 3(d)(4))
6. Deductions: Directive 315
7. Deductions: Added/Deducted Leasing Amount
8. Deductions: Acquisition of Real Estate Outside Israel
9. Total
10. Total After Deductions and Additions
Liability in "Civil Engineering Works" Sector: Of which
11. Sectoral Liability Percentage
12. Excess Liability (Corresponds to Line 13, Column 03, Schedule 01)
13. Additional Provision for Concentration (Corresponds to Line 13, Column 03, Schedule 02, Reporting Date)
Report data after doubling by 20% or 50% respectively.

Monthly Balance Sheet - Page 821-2

Schedule 13: Return of Cheques and Other Liabilities of the Public from Other Accounts of the Banking Institution According to the reason for return

4. Reporting must be done via secure internet computer communication using the format attached hereto by the Bank of Israel.

5. Consolidation: a. The non-monetary report must be fully consolidated, including companies in which the banking institution has activities in Israel, in accordance with Section 9(d) regarding the preparation of annual financial statements of the banking institution (Page 661-14, Reporting to the Public Directive). b. Individuals, including sole proprietors. c. Entities, including unregistered partnerships and registered partnerships. d. "Acquisition Group" as defined in Directive 876. e. Private persons as defined in Directive 831. f. Non-resident as defined in the General Permit. g. "Call" accounts from which withdrawals can be made on demand, and credit that can be drawn on demand and repaid within a number of days, in accordance with the agreement between the bank and the customer. h. Investment companies holding non-monetary assets will be presented in the monthly balance sheet under "Non-Monetary Items" column. i. "Credit-Deposit Contract" (CD): Conditions where:

   1. The account is forbidden to have a balance;
   2. It is forbidden to pay from the account by cheque;
   3. It is forbidden to transfer from the account to another beneficiary or account, except to the banking institution's own account of the same customer;
   4. The deposit is not indexed. j. Deposits in banks, including the Postal Bank. k. The total of all assets in the "Monetary Items" column corresponds to Appendix 'A' - Total of All Monetary Assets. l. "Structured Deposit" as defined in the "Structured Products Law" (Marketing of Investment Portfolios and Investment Management Advice, 1995). m. "Construction Sector in Israel" as defined in Directive 831 (Reporting to the Banking Supervision Department) - "Distribution of Total Credit Risk by Economic Sector".

Appendix 'A' - Monthly Balance Sheet - Off-Balance Sheet Activities in Israel

Schedule 01 (In Thousands of NIS)

	1	2	3	4	5	6	7
Items	Total	Items	Non-Items	Total	Items	Non-Items	Total
Monetary
01 Cash and Deposits in Banks
02 Value of Securities
03 Securities Purchased or Lent under Repo Agreements
04 Credit to Public
05 Provision for Credit Losses
06 Net Credit to Public
07 Credit to Government
08 Held in Investment Companies
09 Buildings and Equipment
10 Intangible and Tangible Assets
11 Assets from Derivatives
12 Other Assets
Total Assets
Of which: Credit from Deposits
14
Balance Sheet Credit Risk: Of which - Construction Sector in Israel
15 Public Deposits
16 Deposits from Banks
17 Deposits from Government
18
19 Securities Sold or Lent under Repo Agreements
20 Commitments and Letters of Credit
21 Liabilities from Derivatives
22 Other Liabilities
Total Liabilities
23 Equity-like Liabilities and Capital
24 Total Equity / Difference
25 Total Liabilities and Equity
Of which: Deposits for Credit
26

Off-Balance Sheet Activities in Israel

Page 888E-1 (Page 806-1) - Reporting to the Banking Supervision Department (Credit Risk in Israeli Real Estate Construction)

1. This reporting obligation applies to banks and foreign banks.
2. The report will include data on activities in Israel on a consolidated basis.
3. The banking institution will submit the report within four business days from the date of publication of the quarterly or annual financial report.

This directive includes all amendments to the "Reporting to the Banking Supervision Department" directives, including the new Directive 888E. After this circular is distributed, this directive replaces Directive 806 (Reporting) with effect from 1.1.2014. The page number of each page in this directive is indicated in parentheses in the header of the corresponding page in the "Reporting to the Banking Supervision Department" file.

4. The report will include three schedules:

   • Schedule 1: Credit risk to the public in the Israeli real estate construction sector.
   • Schedule 2: Credit risk to the public in the construction sector in Israel by type of Israeli real estate collateral.
   • Schedule 3: Credit risk to the public in the construction sector in Israel by Loan-to-Value (LTV) ratio.

5. Reporting must be done via secure internet computer communication using the format attached hereto by the Bank of Israel.

6. Guidelines and Definitions for Preparing the Quarterly "Distribution of Total Credit Risk by Economic Sector" Report: Unless otherwise stated, the provisions of Directive 831 apply to the preparation of this report.

7. Schedules 02 and 03 include, in addition to "Total Construction Sector in Israel," one of the following:

   • "Construction Sector in Israel" (Schedule 01, Line 04).

8. Construction Sector in Israel (Schedules 01 and 03): Includes activities classified as "Construction" in Directive 831 (Distribution of Total Credit Risk by Economic Sector), including "Acquisition Group" as defined in Directive 876 (Loans for Housing), and "Sub-sector Construction" (for Housing).

Page 888E-2 (Page 806-2) - Reporting to the Banking Supervision Department (Credit Risk in Israeli Real Estate Construction)

9. Construction Sector in Israel (Schedule 01): As stated in Section 8 above, the "Construction Sector in Israel" includes:

   • "Industry of Construction Products";
   • "Construction Sector in Israel";
   • "Commercial Products in Construction";
   • "Credit Risk in Israeli Real Estate Collateral". It does not include the primary activity sector of a borrower who is not in the Israeli real estate construction sector, except for Loans for Housing. For this purpose, "Primary Activity Sector of a Borrower Who is Not in the Israeli Real Estate Construction Sector" includes cases where the borrower's primary activity sector is off-balance sheet or in Israel, but is not in the Israeli real estate construction sector.

10. Credit Risk in Israeli Real Estate Collateral: Means significant credit risk secured by a mortgage on Israeli real estate, which is the central factor entitling the borrower to credit on preferred terms that they would not have been entitled to without the mortgage. If credit risk is significantly secured by a mortgage on Israeli real estate, the banking institution must, after approving the borrower's credit, ensure that the estimated value of all mortgaged real estate to the borrower is higher than 50% of the total credit risk balance to the borrower. For this purpose, floating mortgages and second mortgages (except registered for the benefit of a banking institution) are excluded.

11. Real Estate for Housing (Schedule 02): Includes real estate intended or used for residence, including apartments for rent, student dormitories, etc.

12. Real Estate for Industry (Schedule 02): Includes real estate intended or used for activities defined as the "Industry" sector (e.g., "Industry").

13. Real Estate for Commerce and Other Sectors (Schedule 02): Includes real estate not included in the definitions of "Real Estate for Housing" or "Real Estate for Industry" (e.g., "Real Estate for Industry").

14. Real Estate Under Construction (Schedules 02 and 03): Includes real estate where the construction or development process has not been completed, including real estate not ready for use or rent, including raw land.

15. Loan-to-Value (LTV) Ratio (Schedule 03): The ratio between the total credit risk balance at the reporting date and the value of the collateral securing the credit risk, calculated according to the latest assessment of the collateral value. Before the impact of initial collateral, the banking institution has at the reporting date.

Page 888E-3 (Page 806-3) - Reporting to the Banking Supervision Department (Credit Risk in Israeli Real Estate Construction)

16. Raw Land (Schedule 03): Land from which the "Land Development Process" has not begun. "Land Development Process" means a preliminary stage before establishing buildings on the land, including obtaining permits, laying sewage systems, water pipes, cables, and other necessary infrastructure.

17. Real Estate Under Construction (Schedule 03): Includes real estate construction projects that have started but not completed, including projects that have started in the "Land Development Process".

18. Completed Real Estate (Schedule 03): Real estate where the construction and development process has been completed, ready for use or rent.

19. Specification of Credit Risk to the Public in the Construction Sector in Israel by Type of Israeli Real Estate Collateral: The collateral types are: "Real Estate for Housing", "Real Estate for Industry", "Real Estate for Commerce and Other Sectors", and "Real Estate Under Construction" and "Completed Real Estate". The collateral is uniform relative to the type (Housing, Industry, Commerce, Other) or the status (Under Construction or Completed). When the collateral is not uniform relative to the type or status, the banking institution must classify the entire credit risk according to the primary collateral type or status (Under Construction or Completed). For this purpose, the primary collateral type or status is the one exceeding 70% of the credit risk. Otherwise, the credit risk must be allocated proportionally to the estimated value of the collateral at the time of completion of construction, calculated according to the most up-to-date information available to the banking institution.

20. Collateral Including Real Estate Under Construction, Raw Land, and Real Estate in Various Stages of Construction: A banking institution may allocate credit risk according to "Completed Real Estate" or "Real Estate Under Construction" (Section 18 above), provided that the collateral is not a floating mortgage.

21. Line 06 "Non-Israeli Real Estate Collateral": Only floating mortgages may be included in the credit risk limit.

Page 888E-4 (Page 806-4) - Reporting to the Banking Supervision Department (Credit Risk in Israeli Real Estate Construction)

Quarterly Report on Credit Risk in Israeli Real Estate Construction (In Thousands of NIS)

Schedule 01

	01	02	03	04	05	06	07	08
01 Construction
02 Of which: Civil Engineering Works
03 Of which: Real Estate Activities
04 Total Construction Sector in Israel
05 Industry of Construction Products
06 Commercial Products in Construction
07 Credit Risk in Israeli Real Estate Collateral (Primary Activity Sector of Borrower Not in Israeli Real Estate Construction, Except Loans for Housing)
08 Total Israeli Real Estate Construction
09 Of which: CPI-Indexed and CPI-Linked
10 Of which: For Acquisition of Control Means

Schedule 02

	01	02	03	04	05	06	07	08
01 Real Estate for Housing Under Construction in Israel
02 Real Estate for Housing Completed in Israel
03 Real Estate for Industry Under Construction in Israel
04 Real Estate for Industry Completed in Israel
05 Real Estate for Commerce and Other Sectors Under Construction in Israel
06 Real Estate for Commerce and Other Sectors Completed in Israel
07 Non-Israeli Real Estate Collateral
08 Total Construction Sector in Israel
09 Of which: For Project Financing

Notes to Schedules 01 and 02:

1. Presented before the impact of provisions for credit losses and permissible collateral for borrower liability limits. Includes off-balance sheet and balance sheet credit risk, problematic credit, and impaired credit to the public.
2. Includes other assets of the public, other liabilities of the public, investments in public bonds, and credit to the public.
3. Credit risk in off-balance sheet financial instruments calculated according to borrower liability limits.
4. Off-balance sheet and balance sheet credit risk to the public that is under special supervision or impaired.
5. Includes off-balance sheet instruments.

Page 888E-4 (Continued)

By Type of Israeli Real Estate Collateral - Credit Risk to the Public (In Thousands of NIS)

	1	2	3	4	5
Credit Risk to the Public	Impaired Credit Risk to the Public	Total Credit Risk	Balance Sheet Credit Risk	Off-Balance Sheet Credit Risk
Credit Risk to the Public
Impaired Credit Risk to the Public
Provision for Credit Losses
Total Credit Risk to the Public in Israeli Real Estate Construction
Balance Sheet Credit Risk
Off-Balance Sheet Credit Risk
Quarterly Expenses
Write-offs
Net Accounting
Quarterly Expenses

Page 888E-5 (Page 806-5) - Reporting to the Banking Supervision Department (Credit Risk in Israeli Real Estate Construction)

Quarterly Report on Credit Risk in Israeli Real Estate Construction (In Thousands of NIS)

Schedule 03 By Loan-to-Value (LTV) Ratio - Credit Risk to the Public in the Construction Sector in Israel

	01	02	03	04
Raw Land
Real Estate Under Construction
01 Up to 30%
02 Above 30% up to 45%
03 Above 45% up to 60%
04 Above 60% up to 75%
05 Above 75% up to 90%
06 Above 90%
07
08 Total Construction Sector in Israel
Non-Israeli Real Estate Collateral

Page 888E-5 (Continued)

By Type of Israeli Real Estate Collateral - Loan-to-Value (LTV) Ratio (In Thousands of NIS)

	1	2	3	4
Real Estate Under Construction	Completed Real Estate	Total
Total Credit Risk

Note 1: Presented before the impact of provisions for credit losses and permissible collateral for borrower liability limits. Includes off-balance sheet and balance sheet credit risk.

Appendix 'G' - Updates Key

Directive	Circular No.	Date	Page to Remove	Page to Insert	Subject
877-6-7	2345	30.08.2012	(9/11) [11] 877-6-7	*(9/11) [11] 877-6-7	Reporting Directives (Continued)
877-8			(9/11) [11] 877-8	(8/12) [12] 877-8	Various Versions
897-1-5
897-51			(5/12) [3] 897-51	(8/12) [4] 897-51
897-52			(8/12) [1] 897-52	(11/12) [10] 897-52
876	2350	27.11.2012	(8/12) [9] 876-1	(11/12) [10] 876-1	Loans for Housing
876-2			(8/12) [9] 876-2	*(8/12) [9] 876-2
876-3			(8/12) [9] 876-3	*(8/12) [9] 876-3
876-4-6			(8/12) [9] 876-4-6	(11/12) [10] 876-4-6
876-13			(8/12) [9] 876-13	*(8/12) [9] 876-13
876-14				(11/12) [1] 876-14
897-51			(8/12) [4] 897-51	*(8/12) [4] 897-51
897-52			(8/12) [1] 897-52	(11/12) [2] 897-52
834	2360	02.01.2013	(8/12) [73] 803-1	(1/13) [74] 803-1	Exposure to Countries
803-2			(8/12) [76] 803-2	(1/13) [77] 803-2	Foreign
803-3			(8/12) [4] 803-3	(1/13) [5] 803-3
834-1			(12/10) [2] 834-1	(1/13) [3] 834-1
834-2			(9/11) [3] 834-2	(1/13) [4] 834-2
897-51			(8/12) [4] 897-51	*(8/12) [4] 897-51
897-52			(11/12) [2] 897-52	(1/13) [3] 897-52
827	2364	13.01.2013	(9/11) [22] 896-1	(1/13) [23] 896-1	Risk Report
896-2			(12/09) [16] 896-2		Liquidity
897-51			(8/12) [4] 897-51	*(8/12) [4] 897-51
897-52			(8/12) [3] 897-52	(1/13) [4] 897-52
822	2366	27.01.2013		(1/13) [8] 822-1-2	Various Versions
822-1-6					Effective Cost
897-51			(8/12) [4] 897-51	*(8/12) [4] 897-51
897-52			(1/13) [4] 897-52	(1/13) [5] 897-52
831	2367	27.01.2013		(1/13) [20] 831-1-8	Various Versions
831-1-12					Credit Risk Distribution
897-51			(8/12) [4] 897-51	*(8/12) [4] 897-51	Distribution by Economic Sector
897-52			(1/13) [5] 897-52	(1/13) [6] 897-52
801	2369	12.2.2013	(8/12) [15] 801-1	(2/13) [16] 801-1	Reporting Directives
801-2			(9/11) [9] 801-2	*(9/11) [9] 801-2
801-3			(9/11) [39] 801-3	*(9/11) [39] 801-3
801-4			(8/12) [49] 801-4	(2/13) [50] 801-4
809-3			(8/12) [10] 809-3	*(8/12) [10] 809-3
809-4			(8/12) [11] 809-4	(2/13) [12] 809-4
821-1			(1/11) [10] 821-1	*(1/11) [10] 821-1
821-2			(4/11) [11] 821-2	(2/13) [12] 821-2
821-3			(1/11) [10] 821-3	*(1/11) [10] 821-3
821-4			(1/11) [10] 821-4	(2/13) [11] 821-4
888E-1-5				(2/13) [1] 888E-1-5
897-51			(8/12) [4] 897-51	*(8/12) [4] 897-51
897-52			(1/13) [6] 897-52	(2/13) [7] 897-52

• This page was not updated but was reprinted following the transition to double-sided printing.