Israel’s top banks laugh all the way to more profits

Israel’s two biggest banks registered increased profits and lending to Israeli households during 2015, as the Bank of Israel and the Finance Ministry continue to battle it out over reforms that would make the banking sector more competitive.

Bank Hapoalim, the largest bank, reported net profits of more than three billion shekels ($790 million), up from NIS 2.7 billion ($698 million) in 2014. Deposits and loans also increased during 2015.

Bank Leumi announced net profits of NIS 2.8 billion ($727 million) for last year.

In the run-up to Israeli elections last year, Kulanu party leader Moshe Kahlon vowed to “beat the banks” if elected, as part of a campaign to reduce Israel’s high cost of living.

In June, alongside Bank of Israel governor Karnit Flug, he announced the creation of a committee tasked with investigating ways for making the banking sector more competitive.

At a press conference to announce the initiative, Kahlon said the new committee would aim to introduce “real competition in one of the most centralized sectors of Israeli economy – the banking system.”

Kahlon, who made a name for himself by opening up the cellphone industry while serving as communications minister five years ago, said the country’s three largest banks held 70 percent of the industry, a situation which cost consumers hundreds of shekels every year.

“Competition is the best friend of the consumer. It is good for companies and it is good for citizens and this is why we aim to promote it in every sector,” he said.

The committee, chaired by Dror Strum, a lawyer and former anti-trust chief, issued its interim report in December, calling for the credit card companies to be split off from the banks to increase competition over the cost of borrowing.

Publication of the report exposed deep divisions between the Finance Ministry on one side, which is keen to shake things up, and the Bank of Israel and banking industry on the other, which prefer slower change.

The main bones of contention concern the credit card companies – which ones should be severed from which banks and how, who should supervise them and how they should be protected once on their own. Flug has argued that taking away the credit card companies from medium-sized banks could threaten their stability.

The Strum committee’s members include Prof. Avi Ben Bassat, a Hebrew University professor of economics, Amir Levi and Yael Mevorach, the director of budgets and deputy director of budgets, respectively, at the Finance Ministry; Nadine Baudot-Trajtenberg, deputy governor at the Bank of Israel; Prof. David Gilo, who quit as anti-trust commissioner over the government’s natural gas deal; Avi Licht, deputy attorney general on fiscal and economic matters; and Prof. Nathan Sussman, manager of the Research Division at the Bank of Israel.