No interest - editorial

Many of us who immigrated from Western countries recall the basic economic lessons that were taught in grade school about saving money. If you put your extra coins in the bank, they’ll collect interest, and that way you can parley modest amounts into a more substantial egg nest.

That lesson, unfortunately, didn’t transfer to Israel, where the concept of saving money has, over the years, been convoluted at best, and involved locking funds for indeterminate amounts of time for minimal interest.

Israel’s banks have never been user-friendly and have traditionally maximized profits on the back of their account holders – charging fees for every transaction and never offering interest for those patrons who manage to end the month in the plus column.

The Bank of Israel issued a report last month showing that the general net profit of banks in Israel in 2022 amounted to a staggering $6.4 billion.

Bank profits

Bank Leumi posted the biggest profit in 2022, rising 27% to a record NIS 7.7b. ($2.2b.) from NIS 6b. in 2021. Mizrahi-Tefahot Bank also posted a record profit last year of NIS 4.47b., 40.3% higher than its profit for 2021. And Israel’s biggest bank, Hapoalim, reported a record net profit of NIS 6.5b. in 2022, up 38% from NIS 4.9b. in 2021.

We may not agree with much of what Finance Minister Bezalel Smotrich says or does, but his statements at the Knesset on Tuesday, calling the conduct of the top banks “scandalous” in their treatment of customers, were on the mark.

Against this backdrop, Shas MK Yinon Azoulay attempted to force the banks’ hands last week by proposing a bill that would require the banks to pay minimal interest rates, set by the Bank of Israel governor, and approved by the Finance Ministry. The bill was approved by the Ministerial Committee on Legislation and headed for the plenum when Bank of Israel Governor Prof. Amir Yaron sent Prime Minister Benjamin Netanyahu a harsh letter asking him to withdraw the bill, saying it would threaten the BoI’s independence.

“Setting a uniform price harms the activity of the market mechanism, causes all the players to gather around the set price, and in every way suppresses competition and efficiency,” wrote Amir.

He added that he had convened an urgent meeting of the banks’ CEOs in which he instructed them to find solutions.

Just before the bill was to head to the plenum, the coalition withdrew it, apparently heeding Amir’s prudent warnings.

Legislation is not what is needed. What’s needed is for the banks to develop a social consciousness and do the right thing for their customers.

Since the BoI-government tiff, many of the country’s major banks like Leumi, Hapoalim, and Mizrahi Tefahot, have – surprise, surprise – unveiled a series of measures that pay interest on checking accounts and charge lower interest on below-zero balances.

But they all come with provisos. Leumi, for example, will pay 2% annual interest on current account balances of up to NIS 25,000, but only to customers who pay their salaries or pensions into the account and have two Leumi products – either a mortgage, a credit card with an average monthly expenditure of at least NIS 4,000, or a securities portfolio.

Mizrahi-Tefahot will also pay 2% annual interest on current account balances of up to NIS 25,000, but only for customers who hold at least a combined NIS 50,000 in the bank in their current accounts, deposits, and securities portfolio. They will also reduce overdraft interest by 1%-2%.

It’s something, but not much. Hapoalim offers even less – no interest on checking accounts, but a scheme of offsetting a positive and minus balance, thereby combining two of the BoI’s demands of paying interest on current accounts and lowering interest on overdrafts.

Forced into a corner, Israel’s banks have begrudgingly conceded a pittance to their clients in an effort to keep both the BoI and the government off their backs. The lesson they apparently received in grade school only dealt with earning huge interest from the loans they dish out and the hopes that inflation will pump it even higher.

The Israeli consumer shouldn’t stand for it.