Encouraging banking competition and increasing transparency
The Banking Supervision Department continues to implement the recommendations of the Team to Examine Increasing Competitiveness in the Banking System, and has published new Draft Directives concerning
The Banking Supervision Department continues to implement the recommendations of the Team to Examine Increasing Competitiveness in the Banking System, and has published new Draft Directives concerning:
- Maintaining the discount or premium on the base interest rate given to the customer at the time credit is issued or at the time money is deposited in a deposit, such that the benefit will also apply when the credit or the deposit is renewed;
- Displaying the fee rate to customers dealing in securities compared to the average fee rate actually collected by the bank in similar transactions;
- In addition, the Banking Supervision Department is acting to promote a legislative amendment that will authorize it by law to publish information regarding the actual prevailing interest rates on credit and deposits.
The Banking Supervision Department intends to instruct the banks and credit card companies to maintain benefits given to customers when taking out a loan or opening a deposit throughout the period of the loan or the deposit. This is because giving a benefit for a limited period, which is cancelled after the period, creates vagueness regarding the price, thereby making it difficult for the customer to compare prices between similar products and services and, as a direct result, to make an informed decision.
Implementation will be by way of a Proper Conduct of Banking Business Directive from the Banking Supervision Department, following consultations with the Advisory Committee on Banking Issues, to maintain the discount or premium on the base interest rate that applied to loans or deposits on the date the loan was granted or the deposit accepted, even when the interest rate changes.
In addition, the Banking Supervision Department is promoting a legislative amendment that will require banks to provide their customers who deal in securities activity with information about the fees that they will actually pay, compared to the average fees actually collected by the bank from its customers for similar transactions.
The goal of this measure is to deal with the information gap between the banks and their customers, and to increase the transparency of the banking corporations toward their customers. This price transparency should also contribute to increasing competitiveness and improve the customer’s bargaining position vis-à-vis their banks.
Supervisor of Banks David Zaken said, “A basic condition of a competitive banking system is awareness on the part of the customer of the fees and interest rates collected from him, the existence of the ability to compare between a number of alternatives, and the ability to move from one bank to another. These measures will strengthen transparency regarding the price of credit, the interest paid on deposits and the fees for securities transactions. Providing comparative information in the securities area, regarding fees paid by customers who made similar transactions to the one made by the customer, will strengthen the customer’s bargaining power and should lead to a further reduction in the fees for securities transactions.”
This change will be made through an amendment to the Banking Regulations (Customer Service) (Proper Disclosure and Provision of Documents), 5752–1992, and requires consultation with the Advisory Committee on Banking Issues and obtaining the Minister of Finance’s approval. The manner in which the rates and amounts of these fees will be presented will be determined in the Proper Conduct of Banking Business Directive by the Supervisor of Banks, following consultations with the Advisory Committee.
This legislative amendment is a continuation of the series of legislative amendments recently advanced by the Banking Supervision Department regarding securities. Amendments already executed include differential pricing in respect of securities transactions through various channels, setting a maximum fee rate schedule that limits the fees that the bank is permitted to collect from the customer for the purchase or sale of securities, and repricing the fees in respect of securities transactions.
Another legislative amendment promoted by the Banking Supervision Department authorizes the Supervisor of Banks to publish information regarding the actual interest rates on credit and deposits, in order to enable customers to compare between the banking corporations. This change will be made through an amendment to the Banking Law (Service to the Customer), 5741-1981, and requires the Minister of Finance’s approval.
David Zaken added: “The current measures are part of a larger program to implement the recommendations of the Team to Examine Increasing Competitiveness in the Banking System, which reflects our commitment to strengthen the power of households and small businesses and to increase competitiveness in the banking industry.”
As recently announced, the Banking Supervision Department is also taking actions to improve competitiveness and increase transparency in the management of current accounts, by setting a uniform basket of services for managing current accounts.