"I know that some people regard the banking system as the source of every ill in the economy and society, but that is not a true picture. We have a system that operates at a high standard, and provides the public with high-quality services. Still, there is much to improve in fairness, efficiency, and bolstering competition. It is important, however, to do this with discretion, even moderation, in order to avoid damage to stability, and as a result to savers and depositors," Governor of the Bank of Israel Karnit Flug said today at a seminar at the Hebrew University of Jerusalem.
Flug spoke about the state of the banking system in Israel, particularly in view of the criticism of lack of competition in the banking system, and the committee established by the Ministry of Finance with the Bank of Israel for improving competition in the sector. She said that she understood the criticism, but also hinted that it was exaggerated and not always correct: "In recent years, the discourse on the banking system has become more charged, sometimes even violent, and the figures on which the discourse is based are inaccurate in many cases."
Flug added, "The Israeli banks' profits are not excessive. The average return in recent years has been in single digits, and has not deviated from the prevailing returns around the world. This is also the reason that we are not seeing any hurry on the part of foreign banks to provide retail banking services in Israel." She also addressed criticism against the Bank of Israel itself to the effect that it cared only about the banks' stability, not increasing competition, saying, "There is an erroneous conception that the Bank of Israel is concerned about the banks' stability and is therefore neglecting the promotion of competition in the banking system. I see no contradiction between the banks' stability and increasing competition in the banking system. On the contrary; a competitive system is a system that the public will find it easier to trust, and will therefore be more stable."
The Governor also called in her remarks for improving competition in the banking system without creating shocks and structural change in the sector. "There are many things to improve and correct: in fairness, efficiency and improving competition. It is important to do this with discretion. The measures introduced in recent years prove that strong competition can be achieved even in the current market structure," she said.
Flug also commented on the banks' salary expenses, which are higher than the global average. "Banks in Israel are among the less efficient by international comparison. The problem centers on salaries." On top management salaries, an area in which the Bank of Israel only recently imposed a series of new restrictions, Flug said, "Executive salaries have widespread consequences for the public attitude towards the banks, and the ability of the banks' management to demand restraint and lower salaries from the rest of the employees. The Bank of Israel has taken action in this area, but this not merely a matter of complying with regulatory provisions; it involves the ethical and social responsibility that the banks should assume for themselves."
Published by Globes [online], Israel business news - www.globes-online.com - on June 30, 2015
© Copyright of Globes Publisher Itonut (1983) Ltd. 2015