• In recent years, the financial system in Israel and across the world has been changing and becoming more sophisticated. New financial institutions are entering the market and new technologies are being developed. Such developments require that banks undergo significant changes as well, to adapt to the changing financial environment, in order to address the growing competition in financial markets.
  • Increasing the efficiency of the banking system is critical for addressing change in the business environment, as it would allow banks to better face the growing competition and to allocate funds for investment in advanced technology, so that in future, the banking system would align itself with the changing environment and would be able to rely on technologies that would improve the customer experience while reducing the cost of bank services.
  • The Banking Supervision Department has been proactive in recent years in promoting alignment of the banking system with a competitive, digital world and in encouraging the banking system to embrace change. This supervisory action was taken from a holistic viewpoint, with reference to all layers of change—technology, employees, customers and risk management.
  • In this review, we present the changes that have taken place in banks’ increasing their efficiency, and in particular with regard to payroll and real estate, as well as the change in investment in technology in recent years and its contribution to streamlining and to the wellbeing of bank customers. We also present analysis showing how operating expenses would have grown, had banks failed to make the aforementioned adjustments to their activities and had they continued to increase their labor force and other expenses at a rate similar to that in the beginning of the previous decade.
  • In recent years, the banking system has taken many significant measures to increase efficiency, which resulted in reduced operating expenses alongside growth in operations and support for economic activity. Thus, since end of 2014, total assets for the 5 large banking groups have grown by 18 percent, while operating expenses declined by 8 percent. Such improved efficiency is outstanding even by international comparison.
  • These streamlining measures were applied by the banks across all expense items, but most significantly in payroll and maintenance (primarily expenses with respect to real estate), which decreased significantly as percentage of total assets.
  • In this context, from 2014 through 2018, the number of jobs in the banking system decreased by 5,350 (or 13 percent of total jobs) – this decrease alone resulted in annual savings of NIS 2.1 billion in payroll expenses. Moreover, had the headcount continued to grow in proportion to total assets at the efficiency level previously common, today the banking system would have employed an additional 14 thousand employees, with annual expenses higher by over NIS 5 billion.
  • Concurrently, many steps were taken to reduce maintenance expenses, primarily branch closures (total area reduced by 25,000 m2 over the past three years), which contributed to reduced costs with respect to buildings and building maintenance, transition to technologies that streamline work processes and reduce expenses, both in interfaces with bank customers, in office costs and in back offices of the banks. However, branch closures also cause difficulties for some demographics that find it challenging to adapt to technological change, hence the Banking Supervision Department has been acting on several fronts, in order to reduce the adverse impact to the public as much as possible and to help these demographics in adapting to change.
  • When comparing banks, variance is evident in the level of efficiency, as well as in the extent of streamlining and in the streamlining strategy applied over the years. Concurrently, we can see that some banks choose to invest less than others in technology. Overall, in recent years the banking system has increased spending on technology to 10 percent of total revenues, a level that is high by international standards (around 7 percent).
  • Transition to digital channels has enhanced the availability and convenience of conducting banking transactions and has made access to banking information easier for all bank customers, while reducing costs through lower fees on transactions conducted via direct channels. All of the foregoing is reflected in the high satisfaction of the public with digital channels. It is expected that in the coming years, the quality and accessibility of services for clients should continue to improve (through innovation and digital), which would be further reflected in lower cost of banking services.


Table 1 – Summary of components in increasing efficiency

Staff reduction


Reduced 5,350 jobs since 2014

Payroll expense reduction

Payroll expenses reduced, on aggregate, by NIS 5.2 billion since 20141

Branch closures


Over the past three years: Closed 100 branches, with a total area of 25,000 m2

Reduced expenses for maintenance and real estate


Rent paid by banks decreased by 11 percent;

All maintenance and real estate expenses reduced, on aggregate, by NIS 810 million since 2014 (14 percent reduction in these expense items)

Increase in IT budget


IT investment and expenses increased, on aggregate, by NIS 1.4 billion since 2014; IT budget as percentage of bank revenues is at 10% on average

Savings due to technological developments


Office expenses reduced by 45 percent; communication expenses reduced by 13 percent

Contribution to customers


Cost of account maintenance reduced by 37 percent, estimated annual savings of NIS 3 billion on aggregate for all households since 2014;

Improved quality and accessibility of banking services


      1  Estimated additional payroll expenses if not for measures to increase efficiency. This estimate assumes that headcount would have remained unchanged since 2014.