The Characteristics of Firms with Bank Credit that Recently Issued Bonds on the Tel Aviv Stock Exchange

Michal Zilberberg and David Ruthenberg
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Michal Zilberberg: Bank of Israel
David Ruthenberg: Bank of Israel

Israel Economic Review, 2010, vol. 8, issue 1, 45-68

Abstract: In this paper, we examine the characteristics of firms with bank credit that issued bonds on the Tel Aviv Stock Market (TASE) during the period 2003–07. The purpose of the research is to determine how the expansion of the nonbank credit market has affected the risk of bank credit. The analysis was carried out using a number of statistical approaches, in particular the Logit model which differentiates between firms that have issued bonds on the TASE and those that have not. We reached the conclusion that it is primarily large, profitable and low-risk firms, i.e., higher-quality firms, that have issued bonds on the TASE. Although various accounting and macroeconomic indicators (such as the ratio of bank credit to GDP, the ratio of annual loan loss provisions to total bank credit, etc.) show that the risk of the credit portfolio has declined, the phenomenon that we describe has, in our opinion, two parallel and opposite effects on the banks’ credit portfolio. The first is the negative effect on its quality and the second is the positive effect on its level of diversification. We would mention that small, high-risk firms that have bank credit took advantage of the boom in the capital market and the high rates of economic growth during the period 2003-7 in order to issue bonds on the TASE which replaced (or supplemented) bank credit. However, due to their small share of total bond issues, their effect on the overall risk of the banks’ credit portfolio was minimal.

Date: 2010
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