After staff work carried in collaboration by the Banking Supervision Department and the Research Department, on June 20, 2023 the Governor of the Bank of Israel invited the CEOs of the banks to a discussion, on the issue of interest on deposits, positive balances, and loans in the banking system.

At the end of the discussion, the Governor of the Bank of Israel and the Supervisor of Banks set goals that are appropriate for the banking system to work to achieve, with the goal of benefiting its customers and strengthening its fairness toward them.

Over the ensuing 2 weeks, each of the banks formulated a package of steps in accordance with the various goals and in line with its business characteristics. The packages include various benefits for customers, as well as active and focused assistance for those experiencing difficulties in repaying their mortgage and are in overdraft on their current account.

These steps include, among other things:

  • Regarding the goal of easing the burden on customers in overdraft in their current accounts

Reducing interest rates on current-account overdrafts, offsetting positive balances and negative balances in a manner that reduces the overall amount charged, absorbing an increase in the Bank of Israel interest rate for various periods, etc.

  • Regarding the goal of active assistance to holders of mortgages that are identified as having the most significant difficulties

Crediting customer accounts at amounts deriving from the increased expense of the mortgage, partially absorbing the increase in interest rates for various periods, etc.

  • Regarding the goal of appropriate passthrough of the interest rate on households’ positive balances

Paying interest on household current accounts, improved terms on deposits, with an emphasis on small household deposits, etc.

  • Regarding the goal of active and continued encouragement of customers with a current account balance that exceeds a certain threshold to shift funds held in current accounts to channels with better remuneration

Outlining the relevant populations, setting targets, carrying out proactive initiatives to customers, via bank apps, SMSs, phone calls, the bank’s website, initiating campaigns, etc.

Some of the steps refer to specific groups of customers and some are implemented automatically. In terms of customers for whom the benefit or assistance do not apply automatically in their account, continued initiated contact to customers to realize the possibilities available to them is required. In this regard, a draft update to the E-banking directive was published (LINK). It removes a regulatory barrier and enables banks to contact all their customers proactively, via SMSs (including voice SMSs). Within this framework, the banks are also required to formulate policy in accordance with the characteristics of the various customers.

These processes join additional processes led by the Bank of Israel with the goal of enhancing competition, transferring power to the customer, and enabling customers to compare the terms of various products offered by the banks, to negotiate with the bank on interest rates and account management terms, and if needed to switch banks online, easily and at no cost. In this manner, the public can survey the market, receive information that is more accessible, and act in an informed manner vis-à-vis the banks that will optimize the terms of their relationship with the bank.

The Bank of Israel continues to focus on additional activities and steps to promote competition in the banking system and to improve the welfare of the customers. In this regard, see the link to the press release published today on the issue of expanding the comparative information available to the public at the bank’s website, so that in addition to the information published on interest rates on deposits and consumer loans, there will also be information on interest rates in respect of mortgage loans at the individual bank level.

Governor of the Bank of Israel Prof. Amir Yaron said, “The way to achieve an improvement in customers’ situation in an advanced and modern economy is by removing barriers and improving competition, whether between banks or from nonbank entities. In contrast, intervention in market mechanisms and certainly steps that are liable to distort monetary policy are liable to achieve an undesired result in the equilibrium that ultimately will be created in the market. The measures adopted are another step to improving the welfare of the customer. We will continue to utilize the tools available to us in order to achieve these goals to improve the situation of the customer and promote competition in the financial system.”

Supervisor of Banks Mr. Daniel Hahiashvili said, “The various steps formulated by each of the banks will contribute to improving the fairness in the relationship between the banks and their customers and will assist the relevant customers in dealing with the debt burden in the coming period. This step is part of a range of steps being taken by the Banking Supervision Department to ensure that the banks continue to be responsive to the customers’ needs in view of the effects of the changing economic environment. The Banking Supervision Department will continue to closely guide the implementation of the various goals in the system, will take steps to enhance transparency and competition among the banks, and will verify that the banks continue to contact customers proactively, all with the goal of continuing to improve the customers’ conditions.”