NIS 430 a year, that is what the average household pays a year in bank fees for regular checking accounts, according to an internal Bank of Israel report TheMarker has obtained.
While the amount is similar - in nominal terms - to the world average, 78 euros in Israel compared to 76 euros around the world, in real terms bank charges are much higher here in Israel, however, because the world average is based on 20 developed nations in Europe and North America.
The reason is that the per capita gross domestic product (GDP) in Israel, which represents the standard of living, is much lower than the average in those 20 countries. In simple terms, in Europe it is much easier to afford those 76 euros a year for banking fees than in Israel - where the average wage is 30 percent lower.
The report reveals that the reason for the high fees banks charge households in Israel is the combination of high centralization along with lack of competition in the banking industry.
The concentration in the banking sector is higher in Israel than the world average, the report explains. However, it is similar to that in most countries similar to Israel with regard to size of the economy and population. Therefore, the real problem does not stem only from too much centralization.
The true cause of the high fees is the low level of competition. It turns out that the Israeli banking industry is not at all competitive. It functions as an oligopoly. The Israeli bank competition index is only 0.56, much lower than in most Western countries.
The average competition index in the 20 developed countries is 0.68, with Holland having the highest competition at 0.86.
So what is Holland's secret? It is also a small country with only 3 or 4 big banks. The secret is that in Holland, in addition to the few big banks, there are also 45 small banks - local and international - which compete with the big banks and raise the level of competition.
The result is that households in Holland pay the lowest amount of bank fees in the world on average: 25 euros a year. This is less than a third of what we pay in Israel.
There are no foreign banks in Israel that compete in the household market. Foreign banks prefer to avoid this market, since the big banks control it, and customers are a captive market. Also, foreign banks have no advantage in opening Israeli branches, since they cannot use them as a base for their operations in Arab states.
The authors of the report recommend an encouragement of competition in the banking industry, both in the long and short term.
To accomplish this they recommend supervising the cost of banking services and significantly improving the level of transparency of the banking sector - so that the customer knows exactly what he is paying for.
The report recommends that the number of fees charged be reduced significantly and also calls for preventing the situation where their number rises again soon afterward. After reducing the number of charges, the report recommends that all new fees receive approval of the Supervisor of Banks, in the Bank of Israel.
The banks will also be required to give each fee the same name, so customers will be able to compare between banks. They will also be required to present the list of fees charged to households separately from the general list and to notify customers clearly of charges.
Finally, the report recommends that only in cases where all these changes do not help, the supervisor would intervene directly in setting the fee - but only as a final resort.
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