BoI governor tells banks to pay current account interest

Governor of the Bank of Israel Amir Yaron expects Israel’s banks to start competing in the payment of interest on current accounts, as they do on deposits. Sources inform “Globes” that, at the urgent meeting that Yaron called with the CEOs of all the banks today, he did not stipulate a rate of interest that the Bank of Israel will dictate to the banks through a regulatory order, but the matter was one of the main ones raised at the meeting, at the end of which the banks were asked to propose concrete plans for paying interest on current accounts, in which Israelis currently hold a total of some NIS 400 billion on which no interest is paid.

After the banks submit their proposals to the Banking Supervision Department at the Bank of Israel, the next stage will be approval by the regulator. Since the Bank of Israel has not for the time being indicated an interest rate that it expects the banks to offer, it Is not clear what will meet its criteria. It may be that the Yaron did not stipulate a precise figure at the meeting in order to let competition do its work.

Besides interest on current accounts, Yaron called on the banks to encourage customers to move money from non interest-bearing accounts to deposits on which they can obtain interest rates for 4% if they keep the money on deposit for a year. This is much higher than the rate paid by the only bank so far to offer interest on current accounts, Bank Leumi, which offers just 1%, and even then on a maximum balance of NIS 10,000, and with conditions attached. Yaron also told the banks that he expected them to ease terms where possible for providing credit. The banks have passed on the Bank of Israel’s interest rate hikes to their borrowers almost entirely.

Published by Globes, Israel business news – en.globes.co.il – on June 20, 2023.

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