Major banks’ profits surge as they cash in on wartime credit and fee growth
As households and businesses grapple with high cost of living, rising mortgage rates, and growing credit and loan needs during war, Bank Hapoalim and Bank Leumi post big profits
Sharon Wrobel is a tech reporter for The Times of Israel
Israel’s two largest banks have started the first few months of the year on a high note as they continue to rake in record profits that defy economic conditions of local businesses and households that grapple with increased mortgage and lending rates amid the months-long war with the Hamas terror group.
At a time when the cost of living is soaring and many households are struggling to make ends meet, Bank Hapoalim this week saw its profit jump 25 percent to NIS 2.42 billion ($682 million), while Bank Leumi reported an increase of 12% for the first three months of the year versus the same period in 2024.
The profit windfall is fueled by a high-interest-rate environment, bolstering the lenders’ income from net interest and fees paid by mortgage and loan holders.
Since war with Hamas broke out with the October 7, 2023, onslaught, the Bank of Israel cut interest rates only once in January last year, as the inflation environment remained high. Since then, borrowing costs have remained at 4.5%, burdening households and businesses with higher lending costs.
That’s as the central bank steadily increased borrowing costs since 2022, allowing commercial banks to lift mortgage and lending rates sharply, which has been eroding the disposable income of households, which have been contending with a slowing and war-battered economy.
Despite benefiting from rising mortgage and lending rates, the country’s banks have been sluggish or have failed to raise savings and deposit rates for customers accordingly.
“If we look at the high profits the banks posted for the first quarter versus the previous or last year, nothing much has changed,” Moshe Kashi, director of the Finance Department at grassroots advocacy group Lobby 99, told The Times of Israel. “The main reason the banks are managing to rake in excessive profits is due to the high interest-rate margin – the differential between the interest they collect on loans and mortgages and the interest they pay on deposits and other savings vehicles.”
Bank Leumi said Tuesday that income generated from net interest jumped 6.6% in the first quarter of 2025 to NIS 4.02 billion ($1.14 billion) from about NIS 3.77 billion ($1.07 billion) year-on-year. Fee income generated NIS 1.02 billion ($290 million), an increase of 9.2%. Housing loans or mortgages rose 10.4%, and credit to retail customers was up 3.4% in the first quarter.
Earlier in the week, Bank Hapoalim reported a 12% increase in net interest income to about NIS 4.28 billion ($1.21 billion) year-over-year. Fee income amounted to NIS 1.06 billion ($299 million), showing a 9% rise.
Kashi cited the high concentration of a handful of commercial banks that control the market and a lack of competition among banks as the main reasons for the constraint on margins and fees.
Israel’s banking system is highly concentrated, with the five largest banks — Bank Leumi, Bank Hapoalim, Mizrahi Tefahot, Israel Discount Bank and First International Bank of Israel — dominating the market.
“In Israel, the high cost of living is felt across almost every product and service that we consume, but when it comes to financial products and services, figures are far bigger,” said Kashi. “If a customer pays 0.5% more interest, it makes a difference of thousands of shekels a year in the pocket, but transparency, the availability of comparative instruments, and other technology tools can help shop for better rates and translate into huge savings.”
Bowing to uproar among the general public over the banks’ seeming greediness and following pressure from some lawmakers proposing legislation to rein in excess profits, the central bank earlier this year ordered the country’s banks to introduce a NIS 3 billion ($850 million) financial relief package over the next two years to ease the financial burden on households and businesses. The package includes temporary one-off benefits, fee waivers and some improved interest rate terms, but hinges on various conditions.
“This is not how a functioning market should work,” said Kashi. “The market needs to be based on competition and not on a concentrated group of banks that generate excess profits, and a regulator that nicely asks them to give back some money to customers.”
“It is like a child that cries asking for a big toy, and you offer a toffee so it stops crying,” he said.
“For years, the regulator has been sleeping, and only in recent months, because of the public pressure and threat of legislation by politicians acting for the good of consumers, we see a few minor initiatives,” Kashi said.
He welcomed a recent initiative by the Bank of Israel’s banking supervision and the Finance Ministry to reduce barriers so that more players will enter the market, including fintechs, which he said will hopefully create a more diversified banking market and increase competition.
Banking supervisor Daniel Hahiashvili said Monday that an inter-ministerial committee is advancing legislation for a licensing framework to allow the entry of smaller banks and non-bank entities that will provide credit and savings tools, which eventually is expected to force current lenders to offer better and more competitive terms and services.
“Another initiative that is being advanced is that customers will be able to choose deposits offered by local lenders without having to open a bank account,” said Kashi. “In addition, banks since the end of 2024 need to alert customers with an account balance of at least NIS 15,000 and offer them interest-bearing deposits.”
“Awareness of various banking services and savings tools needs to be brought to the public, so that customers have bargaining power over fees and are able to compare and get a lower interest rate,” he added.
Kashi said Israel needs to advance structural changes to adopt an open banking framework, which puts consumers more in control of the choice of their financial services rather than the banks.
“Under the current system, when you open an account at a bank, you receive most of the financial services, such as deposits, loans, and so on, from the same lender,” said Kashi. “In an open banking framework, consumers can choose banking services and tools from different banks and non-bank entities – similar to a supermarket of banking products.”
“Structural changes for the entry of new banks, an open banking concept, transparency of banking products, and consumer awareness of comparison tools are the main factors that will create competition, but it will not happen overnight,” he said.
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