The implementation of the plan to increase efficiency in the banking system and ensuring that its benefits reach bank customers

  • In January 2016, the Banking Supervision Department published a directive, according to which every bank is required to present a plan to markedly increase efficiency over the coming years. Within the framework of the plan, workforces and overall expenditures will be reduced, and based on such plan the bank will receive leniencies in capital requirements, and the cost of the plan will be able to be spread out from an accounting perspective. Subsequently, the Banking Supervision Department expanded the directive to encourage increasing efficiency in the area of real estate. This study is intended to present the background and goals of the multiyear plan to increase efficiency, and the banking system’s progress in implementing it.
  • The Banking Supervision Department’s objective is to bring the Israeli banking system to an efficiency level similar to that of banks in other advanced economies, which continues to consistently improve, and to verify that the banking system brings its business model in line with the changing environment, so that it will be sustainable in the competitive and technological world that is developing.
  • The Banking Supervision Department is working to confirm that the processes of increasing efficiency and the changes are carried out with sensitivity toward all the population groups involved—customers as well as employees—by using varied tools that make the transition period easier.
  • The Banking Supervision Department is working to ensure that the benefits of the increased efficiency are passed on to the general public in three main ways:
o   Improved service, availability, and convenience of utilizing banking services, through technological innovation
o   Reducing the cost of banking services for customers operating through direct channels
o   Increasing the dividends distributed by banks, as the public holds 80 percent of the banks’ shares
  • To date, the banks are complying with the implementation of the defined plan: From the date of publication of the directive, there has been a gradual improvement in efficiency indices for the banking system in general, and for most banks individually. Salary expenses and related expenditures declined in the first half of 2017 by approximately NIS 200 million, compared with the first half of 2016 (about 2.2 percent). During the course of 2016 and the first half of 2017, there were (net) retirements of approximately 1,870 employees (a notable portion of whom left through voluntary retirement plans) alongside (net) closings of 68 branches (about 6 percent of the system’s total branch deployment)—of which 7 branches were abroad in view of a contraction of the banks’ activities there. In addition, teller services were cancelled in about 110 branches and real estate area was reduced by about 30,000 square meters. Most of the branches closed were in localities in the center of the country in which there are branches of several banks. These changes were carried out through changes in the organizational structures and work processes at bank executive offices and branches, focuses of activities, large investments in innovation and technology and expanded banking services offered to customers via digital means.
  • Such large processes of change are complicated from the perspective of bank customers as well as of the banks and their employees. In the short term, the processes of increasing efficiency incorporate the departures of many employees who were part of the banking system for many years, who left within the framework of voluntary retirement programs; very large investment by banks in technology and innovation; adjustment of the organizational structure, work processes, and business model; and investment in assisting customers with the switch to technological means. These processes at times lead to some adverse impact on the availability and quality of banking services, compared with how customers were used to utilizing them prior to the change. In particular, there is some difficulty in the transition period for senior citizens for whom the bank branch where they were used to receiving service closed and was merged with another branch that they are not used to.
  • Through 2021, an additional 3,900 employees (net) are expected to retire, resulting in a 12.5 percent total decrease in labor force from 2016, alongside continued branch closures. Assessments worldwide are that the automation of basic banking services—as well as internal bank processes such as management of call centers and back office operations centers—will lead to other major changes in banking and to continuity and strengthening of processes to increase efficiency in the coming years.