The Governor of the Bank of Israel and the Supervisor of Banks held a special discussion with the CEOs of the banks regarding the interest rates on deposits, current accounts, and loans in the banking system
Bank of Israel Governor Prof. Amir Yaron said: “The banking system is strong and profitable. The system recently recorded very high profits and a sharp increase in the return on capital, partly as a result of the combination of a number of factors: current account balances that remained high and provide a zero-cost source for the provision of credit; insufficient pass-through of the interest rate on deposits in the household segment and high concentration of variable-rate credit, the income from which exceeds the increase in the interest rates. It is essential that the banks figure out how to find the balance that reflects fairness, between the interest rate policy on loans and the interest rate policy on deposits and current accounts—with an emphasis on households and small businesses.”
Supervisor of Banks Yair Avidan said: “The Banking Supervision Department and the banking system place great emphasis on the system’s fairness toward its customers. The targets noted today in our discussion are another step in improving fairness in the system’s various products and services. They can significantly help improve things for the relevant customers, as an extension of the concept of the customer at the center. It is important to note that customers also have tools to compare and improve their conditions, which we have advanced in recent years, and I call on them to continue using them.”
Bank of Israel Governor Prof. Amir Yaron invited the managements of the banks to a meeting at his office in Tel Aviv, following staff work conducted in conjunction with the Banking Supervision Department and the Bank of Israel’s Research Department. Both outgoing Supervisor of Banks Yair Avidan and incoming Supervisor Daniel Hahiashvili attended the meeting.
During the meeting, the Governor emphasized that the recent high profitability in the banking system was partly due to the high volume of non-interest-bearing demand deposits and an insufficient pass-through of the interest rate to households’ deposits in the current interest rate environment. At the same time, on the loans side there is an almost complete pass-through. These have all led to a very high return on capital that is not sustainable in the long term. In addition, the Governor emphasized the importance of formulating solutions focused on populations groups that are especially experiencing difficulties.
During the meeting, the Governor positively noted some of the measures that various banks have recently taken on these matters for their customers, but clarified that the situation is insufficient. He presented a number of targets that the banking system should work toward in order to benefit its customers and strengthen the fairness of the banking system toward them.
The following are the main targets raised by the Governor during the meeting:
- A proper interest rate pass-through for households’ positive balances.
- On-going active encouragement of customers with balances over a certain level to divert money held in their current accounts to more worthwhile channels (such as term deposits or money market funds).
- Active assistance for mortgage borrowers who have been identified as having very serious difficulties.
- Easing the burden on customers with negative balances in their current accounts.
At the end of the meeting, the Governor instructed the bank CEOs to report to the Supevisor of Banks on their preparedness to achieve the targets he presented. The Governor emphasized that he expects each of the banks to adopt measured and implementable steps to achieve the targets within a short time.