"Some banks improperly price risks. You have to change your attitude," Governor of the Bank of Israel Prof. Stanley Fischer told bank CEOs at a meeting he summoned last Thursday to discuss mortgages.
"Fischer was outspoken. He spoke politely, but his remarks were very harsh," one of the CEOs, who asked to remain anonymous, told "Globes". Another CEO said he felt "reprimanded and humiliated", added, "We're expected to compete, but when we do, we're reprimanded."
The participants at the meeting said that Fischer slammed some banks' mortgage market share-based strategy, in which they cut prices in order to increase their market share. This was a strategy used by Israel Discount Bank (TASE: DSCT) in the past and Bank Hapoalim (TASE: POLI) today.
"The market share strategy is very problematic, and I expect the banks to work according to capital yield, and not to sell products at a loss," said Fischer, adding, "The unprofitable margins created in mortgages has created a situation in which every slight jolt forces the banks to make provisions for doubtful debts."
Fischer summoned the bank CEOs after the Bank of Israel published a new directive limiting the variable interest component (prime rate, linkage to the Consumer Price Index (CPI) or foreign currency) of mortgages to one-third of the total. According to the Bank of Israel, variable interest mortgages to which the new directive will apply, account for 76% of all new mortgages. Since variable interest mortgages are cheaper than fixed-interest mortgages, the overall cost of mortgages will rise. Supervisor of Banks David Zaken estimates the increase at 1%.
Published by Globes [online], Israel business news - www.globes-online.com - on May 1, 2011
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