The commercial banks are not passing on the Bank of Israel's interest rate cuts on to private customers or to the business sector. The Bank of Israel reported today that the bank spread, or interest-rate spread, at commercial banks - the difference between the interest rate banks charge for credit and the interest rate paid on deposits - rose from 3.72% to 3.81% in December 2008, despite the fact that the Bank of Israel had cut the interest rate to 2.5% for December.
The Bank of Israel added that the financial spread was unchanged in October-December, despite interest rate cuts by the Bank of Israel.
The Bank of Israel's figures indicate that the main reason for this situation is that the banks slashed the interest rates they paid on customers' deposits from 4% in September to 2.3% in December. They also halved the interest paid depositors with positive balances in their checking accounts from 1% in September to 0.5% in December.
The Bank of Israel's figures also indicate that there was a negligible increase of just 1.5% in the credit balance to business customers in November-December, despite the interest rate cuts by Governor of the Bank of Israel Prof. Stanley Fischer. At the same time, the credit crunch in the non-banking sector means that banks are the only source of credit for businesses, hence the banks' importance.
Published by Globes [online], Israel business news - www.globes-online.com - on February 3, 2009
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