Will one of the banking system’s closely guarded secrets, the interest rate charged on loans, be made public so that people can compare the banks’ various offerings? Supervisor of Banks Yair Avidan has decided to take action on the matter following criticism of the banks in recent weeks for not having raised the interest they pay on deposits in direct proportion to the rise in the Bank of Israel’s rate while they rushed to raise interest rates on loans. The Bank of Israel was also criticized, for not having obliged the banks to raise deposit interest rates accordingly.
This morning, Avidan wrote to the CEOs of the banks and credit card companies stating his intention of taking action to make the banks publish the interest rates they pay on shekel deposits and the interest charged for credit. The aim is to give customers a simple tool that will help them to compare easily the terms offered by the different banks and to choose the product that most suits them.
"In recent years, because of the near zero interest rate environment, bank deposit products were not an important investment option for customers, and so activity in them fell and large balances were left in current accounts that generally do not bear interest. In the light of the changes in the interest rate and inflation environments, the Banking Supervision Department expects the banks to bring to their customers’ attention the bank investment products in which they can deposit their money, and to invite their customers to examine whether these suit their needs," Avidan wrote to the heads of the banking system.
He added that the banks should give customers a full picture of the terms of their products, including the terms for breaking a deposit when a customer wishes to withdraw money earlier than the agreed exit point.
The banks have argued all along that it is not possible to publish a uniform rate for loans, since rates vary from one case to another in accordance with the customer’s risk profile and other criteria.
In the wake of the recent criticism, three banks, Discount, Leumi, and Mizrahi Tefahot, have announced some improvement in the deposit interest rates they offer customers. All the same, given the expectation that the Bank of Israel will continue raising its rate (which currently stands at 2%) in the coming months, and that it might surpass 3%, no real risk arises to the banks from their "generosity".
In his letter, Avidan wrote that he expected the banks to safeguard their customers’ interests in view of the changes in interest rates and inflation and to adapt their products and services to customers’ needs. He mentioned the reform designed to increase transparency in the mortgage loans market that came into force at the end of August, whereby the banks are obliged to present terms for three identical mortgage tracks, and may present an additional track as they see fit.
Published by Globes, Israel business news - en.globes.co.il - on September 7, 2022.
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