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Supervisor of Banks Dr. Hedva Ber said, “The banking system in Israel is characterized by low efficiency compared with banks in advanced economies, and one of the key goals of the Banking Supervision Department is to improve the banks’ efficiency—that is, a reduction of bank expenses relative to their income. Our goal is that banks’ increased efficiency will be “rolled over” to customers, meaning that it will lead to reduced costs of banking services, shifting of resources to innovation and improved banking service, and to increased dividend distributions to shareholders, who are mainly the Israeli public. The previous directive that we published about a year ago has already led to significant steps to increase efficiency in human resources, in a manner that respects the workers who retire from the banks. The draft directive that we published today for the banking system encourages the banks to examine increasing efficiency in the area of real estate and its operation as well, by easing capital requirements for banks that choose to sell the real estate premises serving management and executive offices and to move to an alternative location that will lead to medium term and long term savings.”

 

In January 2016, the Banking Supervision Department published a directive on the issue of operational efficiency of the banking system in Israel. Due to this directive, most banks presented significant voluntary retirement plans, which allow employees that are interested in doing so to retire from their work at banks even before the retirement age, with appropriate compensation. The plans are expected to lead to a reduction of about 12 percent in the human resources at the banks between 2016 and 2020, a reduction that derives from voluntary retirement and from natural retirement that for the most part will not be replaced with new workers.

 

The position of the Banking Supervision Department is that reduction of human resources is required against the background of the technological-digital revolution, which has led to considerable changes in how banking services are consumed by customers, and to the banks having to adjust themselves to a “new world”. Similarly, the increased efficiency is necessary in order to lead to lower costs of banking services to the public. Within the framework of the steps being taken by the Banking Supervision Department to enhance competition and reduce costs to customers, and in order to verify that the savings received from the increased efficiency will be rolled over in reduced costs to customers of banking services, the Banking Supervision Department instructed banks to adjust the fee schedule and provide a discount on each activity conducted via direct means (digital, Internet, and automated devices). The guidelines will go into effect during the year.

 

The Banking Supervision Department is now taking an additional step to encourage increasing efficiency in the banking system. The draft of the new Directive that is being sent today to banks expands the definition of increasing efficiency and encourages the banks to examine as well the option of reducing real estate and maintenance costs for executive offices and management premises, including through the renewed examination of geographical location of these units and relocation from major city centers.

 

Currently most of the banks own considerable real estate in the middle of large cities, which serves the banks’ management, executive offices, and at times information system units as well. The operating costs and municipal taxes in respect of these buildings are vey high and the value of these buildings increased considerably in recent years. The workforce reduction also impacts the bank’s requirements with regard to real estate. The draft directive encourages the banks to increase efficiency in the real-estate sector as well, through an easing of supervisory capital. The easing will be granted to banks that decide to sell real estate that serves management and executive office units and move to an alternate location, which will allow savings in expenses over time. This incentive will enable banks to increase efficiency in real estate, to examine the need to expand programs to increase efficiency in human resources, and create a source for continued growth and increased credit.​​​