Israeli banks report record profits while citizens struggle with debt amid war

Local bank statements this week revealed that Israel’s two largest banks noted record profits as many debt-ridden Israeli households struggle to survive financially during the ongoing war.

Bank Leumi announced that its profits in 2024 reached a record NIS 10 billion ($2.8 billion) due to high interest rates paid by loan and mortgage holders. Meanwhile, Bank Hapoalim announced that its profits in 2024 reached a record NIS 7.64 billion ($2.1 billion). 

The Israeli bank sector has, for years, been characterized by a lack of competition and multiple excessive bank fees. Loss of income and rising prices have forced an increasing number of Israelis to accept even higher interest payments and credit fees for keeping their families financially afloat.

Furthermore, Israeli banks are taking advantage of weak regulations that allow financial institutions to exploit their customers. 

Gali Ingber, head of Finance Studies at the College of Management Academic Studies, is deeply critical of the Israeli bank system. 

“The banks have exploited the war situation,” Ingber told the Times of Israel. 

“During this challenging period, most customers were not available to deal with banking issues or their savings plans, as a large part of the population was serving in the army and reserve duty to defend the country, and thousands of others were evacuated from southern and northern communities grappling with the impact of the war,” she said. “This has allowed the banks to continue to act like a pig.”

Moshe Kashi, head of finance at grassroots advocacy group Lobby 99, explained that the high profits that Israeli banks currently enjoy are linked to a fundamental lack of competition. 

“The banks in Israel enjoy excess profits as they are earning more than they would in a competitive market,” Kashi said. 

“The country’s concentrated banking system is controlled by the country’s five largest banks and if there were more competition, the banks wouldn’t be increasing their income from the interest rate margin – the difference between interest received and interest paid.”

Due to a lack of competition and weak regulation, banks in Israel are currently able to charge excessive fees from their customers. 

“The excess profit comes straight out of the pocket of consumers as it is generated partly from unnecessary bank fees that customers are paying, some of which they often don’t even know about,” Kashi argued. 

In recent years, Israeli banks have cut their operational costs by streamlining their businesses. However, instead of offering financial products at lower prices, the banks have instead kept all the profits at the expense of the Israeli customers. 

“In a competitive market, this would have led to a reduction in the costs of products and services banks offer and trickle down to the consumer, but in Israel the fruit of their efficiency measures goes straight into their profits,” Kashi explained.

Israeli banks have to some extent tried to strengthen the Israeli economy amid the war. Last November, Bank Leumi CEO Hanan Friedman announced that his bank would establish a $77M high-tech fund in honor of Israel’s upcoming 77th anniversary. 

"For more than a year, Israel has been at war, and throughout this time, I have been asking myself what we, as the largest bank in Israel, can do and what our role is on a national level. For me and for the bank, the answer is clear: to continue driving the economy forward and doing everything possible to enable the Israeli economy to demonstrate its incredible resilience," Friedman stated.

"The primary growth engine of the Israeli economy is the high-tech industry, which continues to thrive even now. This is because the war has created a unique situation: we have no choice but to develop innovative, groundbreaking technologies in a short time."

While this move may benefit the tech industry, it does not address the excessive bank fees that regular Israeli customers are forced to pay. 

Bank of Israel Governor Amir Yaron recently urged the nation’s leading banks to introduce more competitive financial services for their customers. However, there has been no noticeable change in banking operations within the Israeli market so far.

Knesset Finance Committee chairman, Moshe Gafni, argued on Tuesday that the “state and the Bank of Israel have failed in their supervision of banks.”

“There is an economic need to allow banks to operate independently, but this recklessness… crosses the line of reasonable and normative management of banks in Israel,” Gafni warned. “At a time when the cost of living is rising and many families are barely making ends meet, the banks are operating as if there are no price increases."