The Banking Supervision Department has continued to fulfill its vision of being a proactive, professional and leading supervisory body in 2021, in order to benefit the public and the economy. The Banking Supervision Department’s vision takes into account, among other things, the crucial role of the banking system in the State’s socioeconomic landscape. In order to realize this vision in practice and with the goal of achieving the Banking Supervision Department’s main goals, the Banking Supervision Department’s staff are taking a broad range of measures and actions, as described in detail in the Annual Survey of Israel’s Banking System. This survey is intended to inform the public of the main activities in which the Banking Supervision Department is involved in each year, its current policy, and its guiding principles for the coming years. It also describes the way in which the Banking Supervision Department views and analyzes the activities, developments, risks and opportunities facing the Israeli banking system.
The Israeli banking system, like those in other countries, has been undergoing a revolution in recent years, which is rapidly and dynamically changing banking activity and the competitive environment. The activities that until only recently were in the traditional domain of banks are now also being offered by technology companies and other entities that are providing a variety of banking services. The goods and services have become easier to receive from multiple sources, and are being offered by means of a wide range of online platforms and channels and through the use of advanced and innovative technologies. Innovation and competition—and the accelerating pace of
their development—are creating new types of value for customers and are placing them in a much stronger competitive position. The aforementioned constitutes a serious challenge to the existing banking business model, but they also constitute an opportunity for strategic partnerships, a diversification of revenue sources, and the upgrading of the existing operating model.
This revolution—with an emphasis of focus on the customer—also involves major challenges to the ability to use and leverage information, while maintaining privacy and information security. At the same time, it appears that the characteristics of service in the developing world of technology, digitization and innovation—even as it provides up-to-date and efficient solutions to the needs of many populations—also exposes the difficulty experienced by certain populations in utilizing them. Thus, technology and digitization constitute a challenge to meeting the needs of customers that find it difficult to adopt them.
The challenges of technology and digitization, alongside the provision of service at any time and at any place, increases the possibility of cyber attacks, whose frequency, intensity and scope are on an upward trend. This phenomenon amplifies the practical challenges and the investment needed to provide high level cyber protection and increases the challenge of maintaining business continuity in the banking system.
These challenges characterize banking systems all over the world. In order to enable the banking system to prepare for these challenges and to ensure that the preparations are for the benefit of customers and the public, the Banking Supervision Department has, together with its partners, implemented a series of measures in recent years that have created the foundation for a more advanced and more competitive banking system. This is being accomplished by, among other things, the removal of barriers that prevent progress and by advancing infrastructure projects, such as open banking and “switching banks with a click” platform. These measures are already yielding results and they are expected to improve competition and the welfare of the banking system’s customers.
The changing environment and the developments in the banking system’s relations with its customers require adjustments and reinforcement in the area of fairness as well. The Banking Supervision Department is of the view that a fair and influential organizational culture provides a foundation for fair and high-quality service. Israel’s banking system must continue to build and implement all of the components of such an organizational culture.
Another issue that the Banking Supervision Department has placed high on its agenda is the development of methodologies to evaluate environmental risk (ESG) and to advance the banking system’s readiness on this issue. We attribute importance to the assimilation of standards that relate to the importance of the environmental damage that might be the result of business activity financed and supported by bankers, and can help mitigate it. We are closely monitoring the developments in this area among the leading supervisory authorities worldwide and we will continue to integrate the mitigation of this risk in our activity in coming years, based on the standards that will be adopted by leading international organizations and in the advanced economies.
The COVID-19 crisis illustrated the importance of a strong and stable banking system to the Israeli economy. The year 2021 marked the exit from the COVID-19 crisis and clearly demonstrated the contribution of the banking system to the development and growth of the domestic economy. The growth in economic activity was supported during the course of the year by the expansion in credit provided by the banking system to its customers in all sectors of activity, alongside a decline in interest rates.
Despite the impressive results for 2021, there is growing economic uncertainty as a result of the war in Ukraine and the continuing effects of the COVID-19 pandemic in certain areas of the world.
These phenomena are exacerbating the disruptions to the global production and supply chains, increasing inflationary pressures, and they are leading to a slowdown in global economic growth, to an extent that is currently unclear. Although these forces have not yet reached a significant scale, the situation certainly may change in the future. These developments are being met in Israel by a focused and professional Banking Supervision Department and a strong banking system that is able to continue supporting its customers and the economy as a whole.
The Banking Supervision Department will continue, as always, to maintain a robust and stable banking system—one that is fair in its relations with it customers, can adopt to a changing financial world, and is prepared for future challenges.
Sincerely,
Yair Avidan
Supervisor of Banks
-The full Survey in PDF format
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