Israel – Banking
The banks in
Israel supported economic growth in recent years by financing home purchases for tens of
thousands of households and expanding the financing extended to small and
medium businesses. The increased financing offered by the banks in Israel is
exceptional against the background of developments in Europe, where the banks
have reduced loans in recent years, thereby slowing those economies’ exit from
the financial-economic crisis.
In recent years,
the banks in Israel significantly changed the composition of their activities:
They shifted their focus from large corporate customers to households and small
businesses, leading to increased competition in these areas. The change of focus was reflected, inter
alia, in a greater variety of products and services to households and
small businesses, and in a significant increase of credit to them. The change
took place alongside a reduction in credit to large borrowers, large groups,
and holding companies, and was a result of regulatory changes and supervisory
requirements, the realization of risks, the integration of financial
institutions in the financing of these corporations, and the slowdown in
investment in the economy.
The prices of
banking services for households declined in recent years, both
the fees collected by the banks from their customers, and the spreads between
the interest on credit and the interest on deposits. International comparisons
show that fees in Israel are among the lowest in the world, and domestic
comparisons show that fees have declined in recent years. Moreover, since the
customers are transitioning to consumption of financial services through direct
means—such as the Internet, smart-phone applications and ATMs—they are
benefiting from the fact that these services are even less expensive. The
interest rate spreads are also not exceptional relative to spreads around the
world, although they are higher for households and small businesses than for
large corporations or mortgages—similar to the situation in other countries.
The Banking Supervision Department’s assessment is that if the banks
significantly improve efficiency in the coming years, in accordance with the
Department’s guidelines, it will be possible to further reduce the cost of
banking services.
In recent years
there has been a change worldwide in policy concerning compliance, and many
countries have enhanced enforcement of tax laws throughout the financial
system. The banks have improved their management of compliance risk and
cross-border risks derived from activity vis-à-vis non-residents. Accordingly, the banks have imposed
stricter requirements on these customers in tax matters and compliance
obligations for a wide variety of laws (such as consulting laws) in their
countries of origin. This was reflected in a significant decline in deposits by
non-residents in the Israeli banking groups, and a significant decline in the
international deployment of the banking groups through the closure of branches,
representative offices and subsidiary companies.
The Banking Supervision Department is
guiding the Israeli banking system to implement the most stringent compliance
requirements and, in this context, relates to compliance with all laws applying
to bank customers in their countries of origin and in the countries in which
they operate. Furthermore, the Banking Supervision Department is guiding the
banks to complete the handling of investigations and the broad lessons learned
from them, and to meet the strict requirements imposed by European and other
countries.
The low interest rate environment in Israel and around the world—a
necessary response to the low growth environment—poses a challenge to the
banks: It negatively impacts interest income and serves to increase future
credit risk. The
low interest rate environment over time requires the banks to examine their
business model and focus on reducing costs. In addition, from a forward-looking
perspective, it increases credit risk, inter alia because it may encourage
investors to take greater risks in the search for yields, and because it
increases the risk of over-leveraging of borrowers, chiefly households. Yet, in
the short term, the low interest rate makes it easier for companies and
contributes to the low credit losses recorded in the banks’ financial statements.
Against the background of the robustness of the banks in Israel,
and with forward-looking attentiveness to the public discourse, the Banking Supervision Department to be a
professional and proactive supervisory authority for the benefit of the public
and the economy. Accordingly, the Department has formulated
supervisory points of emphasis for the coming years and the initiatives it will
promote, which include:
-
Maintaining the stability of the
banking system, with the objective of continuing to ensure the public’s
money, and so that the banks will continue to support economic activity over
time;
-Actively
promoting competition in banking particularly regarding households,
small businesses and settlement inter alia through structural changes and
support for the removal of significant barriers;
- Retaining fairness of the banking system toward its customers, and
dealing with cases raised by the public in reference to the various banks.
The Banking
Supervision Department has established enablers for these objectives, on which
it will focus in the coming years. These include:
- Promoting efficiency in the
banking system;
- Encouraging the banking system to implement
innovation and to adopt new technologies, while adjusting regulation to this
objective;
- Balancing regulation while
strengthening risk-based supervision.
The Banking
Supervision Department’s assessment is that the implementation of structural
changes coupled with the promotion of technology and innovation and encouraging
significant increases in efficiency will act to increase competition in the
banking system and will boost the value to customers leading to improved
service and convenience and to lower prices.
In recent months, the Banking Supervision Department has begun advancing
a variety of supervisory initiatives, and has published new policy documents
and guidelines. These initiatives, alongside those formulated by the Committee
to Increase Competition in Financial Services, will, in coming years, create an
infrastructure for competitive and efficient banking that has more value to
customers.
A new policy on banking through means of
communication: This policy removes the barriers to banking through
means of communication, creates an infrastructure for the establishment of a
digital bank with no branches, and transfers “ownership” of financial
information to the customers.
Guidance to the banks on increasing
efficiency: This guidance requires the banks to formulate
significant streamlining programs in order to reduce the efficiency gap between
them and banks around the world, and with the objective of adapting the system
to the technological revolution taking place in the financial arena.
Formulating an outline for support of the
establishment of new banks in Israel, including by (a) removing
barriers in the area of computerized infrastructure: it will be possible to
establish a joint computer center, and new banks, as well as existing small and
medium-sized banks, will be able to purchase computerization and operations
services from it; (b) streamlining and accelerating the process of licensing
new banks, and (c) updating capital requirements. The Israeli economy is small,
and in the banking industry there are size advantages. However, this outline,
together with the leniencies presented in terms of banking through means of
communication, could lead to the establishment of one or two digital banks in
the coming years, and create a competitive threat (contestability). These, in
turn, will contribute to the creation of more competitive equilibrium in retail
areas.
Creating another supervisory “level” that
makes it easier for entities that do not take deposits, such as
merchant acquirers, by reducing capital requirements from them and bringing
them in line with international standards, with the aim of advancing
competition in the clearing market.
All of the aforementioned is in parallel with
the support for the promotion of a credit register—a project that the
Bank of Israel is leading together with the Ministry of Finance—which will
serve as the infrastructure for increasing competition.
List of Banks in Israel
The banking system in Israel
consists of:
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15 banks
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4 foreign banks
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6 credit card
companies
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1 financial institution
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2 joint service companies
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Supervised Banking
Corporations and Credit Card Companies in Israel
Name of Banks In Israel
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Arab
Israel Bank Ltd
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Bank
Hapoalim B.M.
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Bank
Massad Ltd
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Bank of
Jerusalem Ltd
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Bank
“Yahav” Le-Ovdei Hamdina Ltd
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Israel
Dexia Bank Ltd
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Israel
Discount Bank Ltd
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Mizrahi
Tefahot Bank Ltd
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Otsar
Hahayal Bank Ltd
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Poalei
Agudat Israel Bank Ltd
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The
First International Bank of Israel
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Ubank
Ltd
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Union
Bank of Israel Ltd
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Foreign Banks
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Barclays
Bank PLC
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Citibank
N.A.
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HSBC
Bank PLC
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State
Bank of India
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Credit Card Companies
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Cal –
Israel Credit Cards Ltd
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Leumi
Card Ltd
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Isracard
Ltd
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Poalim
Express Ltd
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Europay
(Eurocard) Israel Ltd
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Diners
Club Israel Ltd
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Financial Institutions
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“Hesech”
Kupat Hisachon Lehinuch Ltd, Haifa
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Joint Sector Companies
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Bank
Clearing Center Ltd
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Automatic
Bank Services Ltd
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