Israel's competition watchdog, the Competition Authority, has launched an investigation into the country's banks over allegations that they are not adequately sharing the benefits of their increased profits with customers. The watchdog has requested more data from the banks, saying they have made significant profits from higher interest rates on loans but have been slow to pass on the benefits to customers. The investigation began in 2022, but was only made public on Sunday.
The Bank of Israel has raised its benchmark interest rate ten times in a row since April 2021, in a bid to combat inflation. The rate now stands at a thirteen-year high of 4.75%. While this policy has helped to rein in inflation, it has also led to a rise in mortgage and loan payments, which are often linked to both inflation and the central bank's rate. This has caused public discontent, despite banks making record profits and paying significant dividends to shareholders.
Israel's top five banks earned a combined profit of $1.7 billion in the first quarter of 2022, but the Competition Authority says they have been insufficiently generous with their customers. The watchdog initiated the investigation two years ago, as interest rates began to rise, and has asked the banks for more information in the light of preliminary results. The Authority declined to provide details of any possible disciplinary action.
The Israeli government is keen to tackle the high cost of living, and Prime Minister Benjamin Netanyahu has set up a ministerial panel to address the issue. However, the country's aggressive policy-tightening cycle has proved unpopular with citizens, as the cost of living and loan payments have risen alongside inflation.
The banking regulator, Yair Avidan, has played down the Competition Authority's concerns, saying that 82% of the rate hikes have been passed on to customers. However, Avidan also suggested that banks should better educate their customers about interest-bearing accounts. Meanwhile, Economy Minister Nir Barkat has called for intense and efficient investigation, but the Authority's head, Michal Cohen, refused to step down when Barkat requested her resignation, blaming the authority's failure to confront monopolies for the rise in prices in the economy.