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Israel suspects limited competition among banks

Bank of Israel governor Amir Yaron and his banking supervisor have met with the competition authority to review the matter REUTERS/Ronen Zvulun
Bank of Israel governor Amir Yaron said the programme will help small businesses deal with the economic hardship arising from the war

Israel’s competition watchdog said it would start talks with the central bank over the possibility of declaring the country’s five largest banks an oligopoly and making them subject to directives in consumer checking and savings accounts.

A month ago Israel’s competition authority sought data from the top five banks, saying they were enjoying huge profits from higher interest rates on loans but were not adequately sharing the benefits with customers.

It began an investigation into the banks in September 2022.

“The authority’s checks so far apparently indicate limited competition between these banks,” it said in a statement, adding that while the banks were not colluding, there were conditions for a non-competitive equilibrium in the market.

It pointed to a near 100 percent market share of retail checking accounts among the five largest banking groups – Leumi, Hapoalim, Mizrahi Tefahot, Israel Discount and First International.

Hapoalim declined to comment. The other banks named did not immediately respond to requests for comment.

The Bank of Israel said governor Amir Yaron and his banking supervisor met with authority officials on the matter. But it noted that the central bank had not formulated any position on whether the banks were an oligopoly.

Israel’s government has said it intends to pass a law requiring banks to pay interest on checking accounts since they had not passed on higher interest rates to accounts as quickly as mortgages and other loans.

This drew condemnation from Yaron, who said the legislation encroached on central bank independence since the final say on the level of interest rates in checking accounts would lie with the finance minister.

A vote on the bill was postponed until next week.

Leumi, Mizrahi and Discount have voluntarily opted to pay interest on checking account balances.

In a battle against inflation, the Bank of Israel has raised its benchmark interest rate to 4.75 percent, from 0.1 percent in April 2022.

If banks are deemed an oligopoly, the watchdog said it could ban them from linking deposit accounts with other services. It could also require them to offer savings accounts to those without a checking account, among other measures.