First deal in the market led by CRS
Discount Bank purchased an insurance policy in the amount of NIS 4 billion on its housing bonds portfolio. The transaction, which took effect last August, will allow the bank to release capital of NIS 1.6 billion and improve its capital adequacy ratio by 0.15%.
Last month Discount completed a huge deal with international reinsurers. In this transaction the Bank will insure the Housing guarantees portfolio for apartment purchasers of insurance totaling NIS 4.1 billion and it could release about NIS 1.6 billion of risk assets.
This is an innovative transaction in the Israeli banking market, funded through international reinsurers led by Swiss Re and Munich Re.
According to the outline of the deal, the bank had secured 80% of the portfolio, while discount will remain with 20% of the risk.
Since these international companies have high global rating of AA – or higher, according to the Basel 3 regulations, the insurance policy allows the bank to release the amount of risk assets to 80% of the insured portfolio.
In addition, the move is expected to raise the capital adequacy ratio by 0.1% – 0.15%. The capital adequacy ratio (Tier 1) of the Bank stood at the end of the second quarter of this year, at 9.5%, and its further increase allows the bank to devise a strategy for growth.
Discount deal will not be a one-time deal, i.e. 80% all future bank guarantees will be automatically by this policy insured. This is an effective and efficient instrument for managing the bank’s capital.
The Bank now provides the credit and transfer 80% of the guarantees risk to global reinsurers for a premium.
Discount bank worked on the deal for almost a year, when Israeli advisers of international re-insurance companies, Esti Friedman and Itzik Klein, former seniors insurance and banking employees, raised this idea. Lilach Asher-topolsky, Discount CEO imposed this deal to Orian Dagan, head of Syndication corporate Division, Michael Caspi Shapira Head of Real Estate and infrastructure and Golan Kachlon from the Accounting department.
The transaction received a blessing last June from the Bank of Israel supervisor.
Beard outlined the regulatory route that the deal will be the introduction of Basel 3 and allow the release of the risk assets, which is the main goal of the move. According to estimates, the Bank of Israel saw the idea favorably passing move as part of the credit risk inherent in the Israeli Real Estate market to foreign companies.