Israeli banks told to set aside $839m to offer customers lower fees and other benefits
Bank of Israel urges banks profiting from high interest rates to provide benefits, as households, small businesses, and other war-affected populations struggle to make ends meet
Sharon Wrobel is a tech reporter for The Times of Israel
The Bank of Israel on Wednesday urged the country’s lenders, which have been raking in hefty profits, to put aside NIS 3 billion ($839 million) over the next two years to pay for a new program that includes leniencies in credit and fees to help retail customers cope with the economic repercussions of the 15-month war.
“Due to the current geopolitical uncertainty, the challenges it creates for economic activity, and given the high profitability of the banks in Israel, the Bank of Israel presents an outline we expect the banking system to adopt,” the central bank said in a statement. “The program will benefit customers and strengthen the public’s trust in the banking system.”
The move comes as the country’s banks have come under fire from policymakers and the public for profiting from the fruits of high interest rates on loans and mortgages while households and businesses across Israel struggle to make credit and interest repayments and the cost of living continues to rise during the 15-month war period.
The Bank of Israel is calling on the country’s lenders to introduce a program of benefits for its customers, especially households, small businesses, and those most affected by the war that will be in place in 2025 and 2026. Each bank is expected to set aside NIS 1.5 billion annually to finance various benefits for customers as it sees fit.
Among the benefits proposed by the Bank of Israel are granting interest on current accounts, offering higher interest rates on short-term deposits, lowering interest rates on overdrafts, and granting exemption from fees. Deposits in checking accounts often do not bear interest for holders but generate interest income for the banks.
Each bank, that decides to adopt the central bank’s recommendations, will be obliged to publish the raft of benefits it granted in its financial statements.
Since the war with the Hamas terror group broke out on October 7, 2023, the central bank cut interest rates only once in January, as the inflation environment remained high. Borrowing costs have remained at 4.5 percent, burdening households and businesses as the economy gets battered due to the war.
Around a third of Israeli households, or 35%, have seen a fall in their incomes since the start of the war, a proportion that reached as high as 44% among households in the north and south, where economic activity in businesses, tourism, and the agricultural sector was severely impacted, according to a survey by the Israel Democracy Institute.
Meanwhile, Israel’s top lenders, including Bank Hapoalim and Bank Leumi, have posted record net profits over the past two years as high interest rates and rising inflation boosted financing income and helped credit and loan operations flourish, while repayment costs for mortgage holders have ballooned, adding to the country’s already high cost of living.
The country’s banks have been criticized for not fairly passing on or being slow in offering higher interest rates to deposit holders while quickly adjusting hikes in rates on loans and mortgages.
In recent months, Bank of Israel Governor Prof. Amir Yaron bashed the country’s lenders for profiting from the income they earn from mortgage and loan repayments while not offering the public fair interest-bearing deposits. The governor complained that there is a wide gap between what the banks earn on loans and the interest they pay on deposits, as the central bank raised interest rates in recent years.
Yaron attributed the high profitability of banks to the significant funds that the public holds in checking accounts, which provide a cheap and stable source of financing for the lenders, while they do not generate a proper interest or return for account holders.
