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Israelis pay more than twice as much on their overdraft as West Europeans do, the Knesset found.

Israeli banks charge an average interest rate of 8.26% on overdrafts. In Western Europe, the comparable figure is 3.59%, said Ilanit Bar and Ami Tzadik of the Knesset Research and Information Center.

The researchers found that Israel's banking system is nearly twice as concentrated as the average in Western countries. The system is uncompetitive and inefficient by international standards; interest spreads are high; and it favors big business at the expense of households and small businesses, they wrote.

However, it could be worse: There are many developing countries, especially in South America, where interest spreads are higher than they are in Israel, they noted.

"The absurdity is that Israeli consumers pay interest rates twice the European average, even more than citizens pay in bankrupt Greece and Portugal," said MK Carmel Shama-Hacohen (Likud ), chairman of the Knesset Economic Affairs Committee.

The researchers cited World Bank statistics showing that the net interest rate spread - the difference between what the bank pays to borrow money and what it charges customers who borrow from it - averaged 2.37% in Israel in 2009, versus an average of 1.81% in the 25 most developed nations.

Nevertheless, Israel's average spread was 0.4% less than the OECD average.

The average bank credit extended at any moment in 2011 was NIS 772 billion, which means banks took in an extra NIS 4.3 billion in interest that year - money they would not have received had they charged fees in line with the 25-nation average.

The highest interest spreads were charged to households (6.43% ) and small businesses (5.48% ). These borrowers thus paid particularly high rates to borrow money while receiving very little for their deposits. Big businesses enjoyed much smaller spreads.