The Bottom Line / Who Will Pay the Price?

A growing number of events in the banking sector have left no doubt: The banks have given up on their cautious phase and are returning to business as usual.

A growing number of events in the banking sector have left no doubt: The banks have given up on their cautious phase and are returning to business as usual.

The signal to start came when the banks published their third quarter financial results, which showed an improvement in profitability. This was good enough for the banks to reinstate the distribution dividends. And if the Supervisor of Banks is willing to allow dividends, then why should he object to raising fees or paying bonuses to workers and managers of the banks?

In the area of fees, Bank Leumi made the first move when it announced last week that it was raising its fees and adding a number of new ones. The credit card companies also intend on raising their fees to customers. The reasonable level of profits that a number of banks showed in 2003 will allow some of them not only to give out bonuses, but also to raise salaries.

The banks' return to normal will allow us to take stock of the situation and examine who will actually pay for the crisis in the banking sector.

First, shareholders. They lost quite a lot in the two and a half years of frozen dividends. The deep fall in the banks' market value eroded the guarantees that the shareholders gave to the banks as security for the loans to finance the purchases, such as in the case of the Dankner family, Arison Holdings, Shlomo Eliahu and others. The stock market recovery in 2003 calmed both the lenders and the borrowers in this matter, though.

Next, business customers. The trauma caused to the banks by their mistakes in granting credit to businesses harmed those very same customers in the end, and also led other customers who were actually in better shape into trouble as well. The banks increased their profit margins on lending to the business sector, and stiffened the criteria for granting credit, and even required many borrowers to sell off assets.

As to suppliers and contractors such as cleaning contractors, computer service providers, lawyers and others - they all paid the price as the banks found it necessary to improve efficiency. The banks reduced purchases, pressured suppliers to lower prices, and in many cases suppliers were forced to work at cost, or even at a loss in order to continue to work with the banks. The only suppliers who benefited were insurers who gained from the higher rates resulting from the financial scandals in Israel and the rest of the world.

Next, we have private customers. In the case of consumers, even though a large number increased their use of direct channels - internet, telephone, and automatic teller machines - the cost of banking services continues to rise. Even though the consumer price index for 2003 will be negative, the prices paid by small, private customers actually rose, and now another round of price increases is expected.

Finally we have the banks' employees and managers. Employees vaulted over the hurdle of the banking crisis easily and were not required to pay almost any part of the price for the recession. Bank Hapoalim fired 800 workers, and Bank Leumi had 500 who chose to leave voluntarily, but their severence terms were very generous and none of these workers had to worry about dropping below the poverty line as a result. The employees who are still working for the banks were hardly bothered either, since their unions prevented them from being harmed by having to pay any part of the price for the economic downturn.