Banks Supervisor David Zaken said on Tuesday that he had adopted all the recommendations of a committee on banking competition, including a new one that will allow non-bank financial institutions to offer consumer credit.
Another addition to the original recommendations will make it easier to close an account and move it to another bank by simplifying procedures for transferring standing orders (hora’ot keva) from the old bank to his new one.
Another proposal widens the definition of a small business to one with annual revenue of up to NIS 5 million, a move that will entitle more businesses to reduced account-management charges.
“Full implementation of the team’s recommendations as a complete package will lead to increased competition in the banking services provided to households and small businesses − in terms of the price they pay for the service they receive, in terms of the total available credit in the market and in terms of the quality of the service,” Zaken said in a statement.
The recommendations, which first appeared in an interim report of the Committee to Examine Increasing Competitiveness in the Banking System last July, had been undergoing the process of implementation even before the final report was issued Tuesday.
They should be in place by the end of the year, the Bank of Israel said. However, the timetable depends on whether the Knesset approves the legislative changes needed.
Lots of small borrowers
The particulars of Zaken’s proposal to allow non-bank institutions, namely those offering pension fund savings to members, to offer consumer credit will be formulated by an inter-ministerial committee, the Bank of Israel said. Headed by the commissioner of the treasury’s Capital Markets, Insurance and Savings Division, the committee is supposed to complete its work by the end of the year.
Besides the legal barriers that have to be removed, the issue preventing pension funds from extending loans to consumers is how to cover the costs of operating a program that by its very nature will involve large numbers of small borrowers.
“The barrier [to consumer loans] today is that return on the loan goes to the pension savers while the costs − which are not small, including underwriting, collection, etc. − are covered by the managers,” Zaken said.
In addition to the three new recommendations, Zaken’s committee adopted those from last July, which among other things will allow clients to open accounts over the Internet. That is aimed at saving them multiple visits to bank branches to open a new account.
Banks will also be required to issue clients a “banking identity card” that details their assets and debts as well as their internal credit rating. Savers can use the banking ID to shop for a loan among different banks.
The panel also proposed that both banks and non-banks will be subject to the same interest rate ceiling and to introduce legislation that would make charging interest above that a crime. Right now, the rate ceiling applies only to non-banks and the law applies no sanctions for violators.
The committee also recommended amending the Credit Information Law of 2001 so that better quality data will be available to credit-rating firms and lenders can provide loans based on better-quality information about the borrower.
Another important proposal requires bank to publish online the average rate of interest they pay on deposits and collect on loans, a move aimed at letting savers and borrowers compare rates. Banks will also be required to publish online the fee they charge on securities trading.