Bank Leumi CEO Hanan Friedman spoke for the first time today (Monday) about Finance Minister Bezalel Smotrich's initiative to impose a tax on banks' overprofits, saying: "The tax on banks in Israel already stands at 36% – higher than what is customary in many countries around the world. And we can also give an example from Spain: when the local government there decided to impose a tax on bank profits, the European Bank strongly opposed it and the government froze the move."
Friedman said that this was not the right move: "We are attentive to public criticism and have decided to do so at this time. This is an unusual step, which is not right for households from a long-term perspective. Excess liquidity in the account should be at close in the deposit. We are trying to explain this and instill proper financial conduct among households."
Conference of the Institute of Certified Public Accountants in Eilat, photo: Photo Marcel Eilat
At the same time, Finance Minister Bezalel Smotrich today strongly criticized the banks at a Finance Committee meeting, saying that "the banks' conduct is scandalous" and updated that the Ministry of Finance is "very close to the formula of legislation on banks' overprofits. The formula by which we will have maximum profit, and we will be able to return the money to the public. The money will not go to the state treasury, we will estimate the amount and designate a corresponding amount for assistance programs precisely for target audiences."
The Finance Minister added: "As I have said recently, we will not agree to a situation in which the banks derive huge profits at the expense of the public. Interest rates were raised to combat inflation and maintain the country's economic resilience, not for banks to rake in capital. Together with the Governor, while completely preserving the independence of the Bank of Israel, we are working on models in which the money will return to the public and competition in the banking system will increase."
Finance Minister Smotrich reacts to the interest rate increase (Archive) \\ Photo: Yehuda Schlesinger
In the background, there is sharp public criticism of the banks' huge profits, which derive mostly from the increase in the interest rate in the economy, which is not sufficiently rolled over the public's credit balances and deposits, and is rolled over more intensely on loans and outstanding balances.
Leumi CEO: "The interest rate will begin to decline in the third quarter of 2024"
On the macroeconomic environment, Friedman said, "Economics is a lot of psychology. An economy wants certainty and doesn't like pessimistic forecasts, especially when they have no basis. Difficult prophecies sometimes fulfill themselves. Therefore, it is important to say that better days will come. We at Leumi estimate that despite the slowdown in Europe and the US, in the third quarter of next year (2024) the interest rate in Israel will begin to decline. Most companies in the economy will survive the slowdown, and I don't expect a recession in Israel. Again, decision-makers should look at the current situation as a slowdown rather than a recession. There is a slowdown, but less significant than in the US and Europe. Next year, Israel is expected to return to a growth rate of more than 3%."
Friedman also addressed housing prices in Israel, saying: "In the real estate industry (and not only), the excess bureaucracy in Israel is worth 4% of GDP. By taking a series of steps to deal with bureaucracy, we have been able to get through both the current crisis and the next one, if it comes. It will happen if the government says: 'Enough is enough!', if you take the housing crisis as an example, I say clearly – there are no magic solutions. It is possible to slow the pace of price increases for another year or two, but the real solution must be to shorten bureaucratic procedures and invest in infrastructure. I hope that the government will choose this path, so that project developers will be able to complete them within 3-4 years at most."
It is estimated that the interest rate will begin to fall, Bank Leumi (archive), photo: Yehoshua Yosef
On the high-tech crisis, he said, "Today it is difficult for young companies to raise money in B and C rounds. If the decline in investments continues over time, we will see a decline in Israeli high-tech exports. I hope that the current crisis will be short and that high-tech will continue to be the engine of the economy. Most investments in high-tech are from foreign investors. Institutional investors can't fill all the gaps, but the government can encourage them to invest more."
On fintech companies' entry into the banking system, Friedman said: "We see this as an opportunity. The bank cooperates with them and benefits from the innovation and technology they bring, which help upgrade the customers' experience from banking products."
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