as this turns out to be temporary, the turnaround in prices may lead to a turnaround in private consumption as well, and therefore in activity. a study conducted by arnon barak of the bank of israel research department, which was published this week, shows that in recent years, the main factor leading the increase in private consumption ( according to a long - term comparison estimated in the study ) is the increase in income from labor. the increase in financial asset prices and in home prices made less of a contribution than income from labor. household debt figures show that despite the increase in outstanding mortgages and consumer debt, the debt to gdp ratio and the debt to disposable income ratio increased only moderately. at the macro level, therefore, the risk is moderate. however, the rapid increase of consumer credit in recent years requires closer monitoring on the part of regulators, extra caution on the part of the public and credit providers, and an informed examination of repayment capabilities when providing or taking out credit. the interim conclusion, therefore, is that given the relatively weak state of the global economy, the growth of private consumption contributed to maintaining a strong growth rate and a robust labor market. the fact that most of the increase in consumption relies on an increase in income from labor makes it more stable, but we must be particularly attentive to the part of the increase that is supported by increased credit and asset prices. so if the economy is growing solidly, the labor market is strong, and the engine of growth is private consumption, is there something that needs to concern us? the question is whether growth that relies mainly on private consumption in a small and open economy can persist and be strong enough to reduce the gap in the standard of living relative to the other advanced economies. in this context, it is important to remember a number of facts in relation to the two main uses that have been weak in recent years : investment in the primary industries contributes not only to activity in the short term, but also to future production capacity, and investment in machinery and equipment means adopting the technologies inherent in that equipment, meaning that investment contributes to future growth by increasing production capacity and through its contribution to an increase in productivity. exports make it possible for a small and open economy to exploit its relative advantages and the economy of scale. export industries in general, and also in israel, are therefore characterized by relatively high productivity. how have investments and exports developed in recent years? investment as a share of gdp in israel is low

and engage in cautious credit restructuring, where necessary. the improvement in the fiscal handling of loan write - offs, in the near future, is expected to better support this process ; however, this does not justify the sluggish and protracted action. i, therefore, call for your utmost commitment to successfully implement projects initiated with the world bank in this regard. additionally, quantitative objectives for reducing the level of non - performing loans should be included in your institution ’ s annual work plans for 2014 ; b ) evaluating and selecting new loan applications in a professional fashion. indeed, credit demand remains weak ; however, this exists and must be viewed in terms of its potential for growth in the future. in this regard, the banking industry should bis central bankers ’ speeches strengthen its analysis to steer lending toward those sectors of the economy with high development potentials. priority should also be given to launching banking products that boost credit demand from small and medium - sized enterprises, mitigating credit risk through portfolio diversification and improving the stable return on bank lending ; c ) reducing lending costs. i refer to the interest rate applied to lek loans. to our opinion, it has inadequately reflected both the key interest rate trend and our expectations. from the decrease in the interest rates applied to government borrowing, we understand that the inert moves in the cost of lending reflect the risk premia the banking industry imposes when lending to the private sector. for 2014, we think that the banking industry should better support the private sector, considering that : • imf ’ s agreement with albania will mitigate government ’ s need for borrowing ; • public arrears to the private sector are expected to begin to be paid off shortly ; • worsening financial ratios in the banking industry imposes the gradual return to lending to the private sector, in order to improve the generation of income. second, i would like to underline the need for the significant improvement of technical capacity and structures for risk management. in this regard, your decision making should include analytical assessments of the performance of your institutions against various scenarios. this is a requirement stipulated in the existing regulatory framework, which we will monitor with additional caution over the next year. in our view, this element constitutes a bank management quality indicator. sparing the details, i would like to emphasize that the bank of albania will continue to provide the necessary support for all these processes. we appreciate the professional and direct cooperation with you, as an important element to comply with the requirements of the