​Full section (Hebrew)​



A section from the Survey of Israel's Banking System for 2017 , that will be published tomorrow:

 

  • International comparisons are a useful tool for assessing banks’ stability and activities, and for monitoring the challenges and risks in their conduct. Using them, the Banking Supervision Department learns how banks and regulators worldwide deal with a range of challenges, most of which are also characteristic of the domestic banking system.
  • For a considerable time, the credit quality of Israeli banks has been higher than banks in most countries in Europe and is similar to that of US banks. This is due to, among other things, Israel’s underwriting processes being stricter, and against the background of the supportive domestic economic conditions and the active steps taken by banks and the Banking Supervision Department in the area of credit, primarily reducing credit concentration and decreasing exposure to large and leveraged borrowers.
  • Israeli banks’ profitability is slightly lower than that of the leading banks in Europe and the US, primarily because Israel’s banks take on lower risks; their range of activities is smaller (banks worldwide deal in, for example, marketing insurance and market making); their efficiency is lower; and the tax rate in Israel is higher.
  • Most banks in Israel are less efficient than similar banks in other OECD countries, though their efficiency is on a trend of improvement in view of the requirements set by the Banking Supervision Department and the significant steps taken. The gap in efficiency derives from, among other things, wage expenses (affected by a high tax on salaries) and related benefits in Israel taking up a larger share in total operating expenses.
  • In Israel, as in most advanced economies, the retail banking business model has adjusted itself in recent years to a world of technology and of change in customer preferences. This process includes, among other things, a reduction in the number of bank branches (though at a slower pace than other countries) and a switch to digital banking.
  • The physical accessibility of banking services in Israel—through branches and tellers—is similar to what is generally seen in OECD countries, and even exceeds it. To illustrate, the number of bank branches per 1,000 square kilometers in Israel is markedly higher than the figure for OECD countries.
  • Israeli banks are similar to leading banks in terms of the implementation of the advanced and stricter capital allocation standards as set by the Basel rules. The level of the leverage ratio in Israeli banks is higher than the level at global systemically important banks[1] and indicates that the Israeli banks have a higher level of safety due to the high capital buffers.
  • In terms of liquidity, Israeli banks implement advanced standards, and, like leading banks in Europe, they exceed the minimum threshold requirement (100 percent) established in the Basel III principles. In Israel, these principles have been implemented in Proper Conduct of Banking Business Directive no. 221 regarding the Liquidity Coverage Ratio (LCR)[2].
  • The dividend payout ratio (out of net income) among banks in Israel is lower than the ratio among leading banks worldwide, but it is on a rising trend. As the banks are converging to regulatory capital and liquidity goals, the Banking Supervision Department has approved an increase in the payout ratio for most of them this year.


[1] Without excluding accounting differences.

[2] The indicator called the “Liquidity Coverage Ratio” (LCR) was developed by the Basel Committee with the goal of promoting the short-term resilience of banking corporations’ liquidity profile. The ratio shows the quantity of high quality liquid assets that corporations need to hold in order to survive a significant stress scenario that lasts 30 calendar days

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