Israeli regulator predicts slowing profits
2022.12.07 11:01
Israeli regulator predicts slowing profits
Budrigannews.com – The Israeli banking regulator predicted that, following a robust 2022, profits at Israeli banks would moderate next year.
Some customers are outraged by banks’ large profits because they claim that fees for basic services like deposits and withdrawals are too high and that banks have not raised deposit account rates quickly enough.
Returns on capital ranged from 15% to 18.5% in the third quarter, which was up 30% from the same period in 2021 for the top five Israeli banks’ combined net profit of 6.1 billion shekels ($1.8 billion).
During a recent central bank conference, Israel’s Supervisor of Banks, Yair Avidan, told Reuters, “Profits are quite high, but I believe that these are not sustainable.”
He stated that this year has continued the recovery from the COVID-19 pandemic that began in 2020, when the company “overshot” on credit default provisions and has been unwinding them in 2021 and 2022, padding profits while simultaneously experiencing rapid loan growth.
As a result of branch closures, staff layoffs, and a shift to digital services, banks’ efficiency ratios have fallen to close to 40% from 60%.
Avidan declared, “2023 is going to be the year of moderation.”
The banking index in Tel Aviv has lost 1.2% so far in 2022, compared to losses of up to 10% in blue chip and broader indexes.
According to Avidan, the following year should be a more “challenging year” for banks due to the anticipated peak of interest rates and the need for banks to raise default provisions due to the anticipated slowdown in growth of Israel’s economy to 3% from 6% in 2022.
According to Avidan, this level is unsustainable and historically significantly below more typical levels of 0.75 percent. At this time, such provisions are less than 0.1 percent of outstanding loans.
Similarly, capital returns have not been 15-20% but rather 10-12%. Avidan expressed that in the ongoing climate returns will eventually settle at somewhere in the range of 12% and 15%.
PUSHING RATES In the meantime, policymakers at the Bank of Israel have increased the benchmark interest rate from 0.1 percent in April to 3.25 percent. Additionally, banks have sharply increased lending rates, resulting in mortgage costs rising by more than 1,000 shekels per month.
Critics have voiced their disapproval of banks’ quarterly dividend payments of up to 50% of net profit.
According to Avidan, even though Israel’s banks have a lot of capital, they are not exploiting customers, and new data will make banks more transparent.
The regulator stated that as long as banks meet capital requirements, he has no issues with dividend levels.
He continued, “Investors (benefit) from dividends, and Israeli citizens indirectly benefit from (higher) pensions.”
The national bank has begun distributing rates presented by banks so purchasers can think about them all the more without any problem.
According to its data, the five largest banks offer rates of no more than 1.65 percent on deposits for up to three months. The range for accounts with a term of two to five years is 1.76 percent for Israel Discount Bank and 3.57 percent for Bank Leumi.
“We are exerting maximum pressure on the banks. Avidan stated, “We would like the banks to transmit the interest rate increases much faster,” noting that Israeli banks have moved more quickly than those in many other nations.
