JERUSALEM, March 4 (Reuters) – The head of Israel’s influential parliamentary finance committee, Moshe Gafni, criticized both the government and the Bank of Israel on Tuesday for failing to regulate commercial banks, which he said were reaping excessive profits. He suggested that he might take unspecified measures to curb the banks’ activities.
“The state and the Bank of Israel have failed in their supervision of banks,” Gafni said, hours after one of Israel’s largest banks, Bank Leumi, announced a 40% increase in its net profit for 2024, reaching nearly 10 billion shekels ($2.75 billion). On Monday, rival Bank Hapoalim reported a profit of 7.6 billion shekels, also benefiting from high interest rates.
Gafni described the situation as “recklessness,” stating that the banks’ behavior exceeded the limits of what he considered reasonable. He added, “At a time when the cost of living is soaring and many families are barely making ends meet, the banks are operating as if there are no price increases.”
In response to Gafni’s criticism, the Bank of Israel emphasized that fostering greater competition within the banking sector would improve conditions for consumers. “The Bank of Israel has promoted and continues to promote numerous measures… Some of these initiatives have already materialized,” the central bank said, citing mortgage transparency reform, rapid switching between banks, and the credit data system as examples.
Furthermore, the Bank of Israel pointed to a new initiative, where banks would spend 3 billion shekels to help customers affected by the war. The specifics of this framework are still being finalized.
Gafni has been a consistent critic of the Bank of Israel’s sharp increase in its benchmark interest rate, which rose from 0.1% in April 2022 to 4.75%, in a bid to combat inflation. While the rate has recently been reduced to 4.5%, Gafni believes the central bank did not pressure banks enough to pass rate hikes on to customer savings and checking accounts as quickly as they did with loans and mortgages. Public discontent over the steep increase in borrowing rates has mounted, especially as banks have been paying out large portions of their profits in dividends and share buybacks.
In light of these high profits, Gafni’s committee will reconsider its stance on the issue. Meanwhile, Bank Hapoalim and Bank Leumi are aiming to distribute at least 50% of their profits in 2025, a move the banks argue will benefit the public, as many Israelis hold pension funds and other investments in these institutions.
Additionally, under a tax amendment passed last year, Israeli banks are required to pay an extra 6% tax on profits generated from their activities in Israel in 2024 and 2025, a move Gafni championed.
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