Sources inform "Globes" that, as of Sunday, Bank Hapoalim (LSE: BKHD; TASE: POLI) will raise the annual interest rate that it charges for direct credit frameworks for its customers by 0.5-1%.
A direct credit framework is one approved for all of the bank’s customers, which customers can use at their discretion by taking loans directly from the bank by telephone or Internet. This framework is particularly flexible, since it can be used according to the customer’s needs. The size and period of the loan can be changed, and early repayment is permitted without penalties.
Interest on a direct credit framework for private banking customers and students will rise from 6.5% to 7% per year. Interest based on the prime interest rate is currently at 5%; the risk addition will be 2%, instead of 1.5%. Preferred private customers will pay 10% instead of 9%.
Bank Hapoalim said in response, “The increase is in the risk addition, which reflects the level of risk in granting credit. A direct credit framework is convenient and accessible, with no guarantors, and can be altered at no additional cost. Even after the change in the addition, these interest rates are attractive, compared with other credit products.”
At the beginning of 2006, the Bank of Israel banking supervision department’s new regulation will take effect. This regulation bars banks from allowing their customers exceptional overdrafts, in excess of their approved overdraft framework. The banks must eliminate the many outstanding exceptional balances of many of their customers by the time the regulation takes effect.
As a result of this requirement, customers will have to find alternative short-term loan frameworks, which has led some to predict that banks will increase their interest rates on these frameworks in order to compensate themselves for loss of the particularly high interest rate that they charged on excess overdrafts. Bank Hapoalim is the first bank to announce an interest rate hike for a credit framework.
Published by Globes [online] - www.globes.co.il - on June 22, 2005