The Competition Authority declared the banks a concentration group and imposed restrictions on them

The Commissioner for Competition, Attorney Michal Cohen, announced today (Wed) that the five major bank groups – Bank Hapoalim, Bank Leumi, Bank Mizrahi Tefahot, Bank Discount and the International Bank – together constitute a concentration group in the field of customer services, and that it imposes restrictions on group members in the field of deposits.

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The announcement comes following an examination conducted by the Competition Authority regarding the centralization of banks since 2023, after which they raised the interest on deposits, and a jump was recorded in their interest margins. In the examination it was found that in the basket market of banking services for retail customers there are conditions for little competition and little competition in practice. The market is characterized by barriers to transfer from bank to bank.

In addition, for retail customers (households and small businesses) the price comparison between the baskets of services offered by the various banks is complex. These difficulties result in the fact that the involvement of retail customers is low – most of them do not frequently compare the terms offered by different banks and do not switch banks even when it is expected to benefit them. Thus it can be seen that 86% of the bank’s customers use a deposit in the bank where they manage a main current account.

Cohen imposed a series of restrictions on the banks, which will take effect in a year (May 2027). First and foremost, discrimination in deposit prices will be prohibited, and banks will be required to be transparent. The restriction dismantles the deposit product from the banking basket and prohibits the banks’ behavior that may harm competition and the public.

Full transparency and prohibition of discrimination

According to the Competition Authority, banks today refrain from offering individual banking products to customers who do not maintain a current account with them. In addition, they discriminate between their customers, so that different customers receive different interest rates on deposits and non-involved customers receive less favorable interest rates. In the current situation, the interest rate advertised by the bank does not reflect the interest rates that the bank actually grants on deposits. The provision prohibits discrimination of customers, even those who are not involved, and produces Complete transparency between the advertising and the actual situation, which facilitates price comparison and reduces barriers to transition.

Cohen also obliges the banks to contact the customer proactively near decision points regarding the renewal or repayment of a deposit, to present him with information regarding price offers for deposits and financial funds and to allow him to purchase the deposits and financial funds at the time of repayment or renewal in a simple and convenient procedure.

Deposit renewal or repayment dates are natural triggers for customer engagement. At that time, the deposit money may be released and the customer can choose how to invest it in the future. The bank where the deposit is deposited has an interest in the customer leaving his funds in the bank, and refraining from transferring them to another provider or trying to improve the conditions he receives. If at the relevant time it is expected that the funds will be released to the customer’s current account, the bank will have an incentive to reduce the customer’s involvement.

The banks do not, on their own initiative, inform the customer of the renewal or repayment date proactively, do not encourage him to examine alternatives that are more profitable for him, and do not provide information about the alternatives he faces.

Prohibition of making it difficult to transfer deposits

Another restriction forbids the big banks, which are considered to have a wide scope of activity, to refuse an unreasonable refusal to contract with “money centers” and forbids discriminating against them compared to similar customers.

A money center is a financial body that deals with the concentration of funds of retail customers, among other things, for the purpose of depositing them in a deposit, and pays customers interest for these funds. One of the main investment channels of the financial centers is bank deposits and the provision seeks to deal with the fear that the banks will violate the terms offered to the financial centers in order to harm competition from these entities.

Cohen even refers to the movement of deposits between banks – or from a bank to another financial entity. It requires the original bank and the bank to which the customer transfers the deposit to do all the necessary actions to allow the customer to transfer the deposit. The transfer will have to be done online, convenient, reliable, secure and without charging a fee for the deposit transfer procedure. This provision prohibits making it difficult for the receiving bank to transfer the deposit or fund for the customer.

Controlling about 98% of the assets of the banking system

As of the end of 2024, the five largest banking groups together control approximately 98% of the banking system’s assets, with the two largest groups, Leumi and Po’aleim, together holding approximately 48% of the assets.

A limited number of other players operate alongside these groups. Over the years, the number of active banks in Israel has decreased significantly. Out of 12 independent commercial banks that operated about 20 years ago in addition to the five major banking groups, today only one independent bank remains, and only in recent years a new bank (One Zero) began operating, for the first time in decades.

As mentioned, the competition authority’s inspection was born against the background of the Bank of Israel’s interest rate increase in 2022. In response to the move, the banks began to raise the interest rate on deposits, but slowly compared to the Bank of Israel’s interest rate, and this led to an increase in the banks’ interest margins from deposit-taking activities. In the household sector, the increase in banks’ margins was particularly sharp and the gap between the banks’ deposit margin in the household sector and the deposit margin in the large business sector widened significantly. During this period, a considerable increase in bank profits was also recorded.

The banks contribute to intensifying the difficulties of the customers

The Authority’s inspection found that the banks themselves contribute to intensifying the difficulties encountered by customers and reduce the involvement of the latter. Thus, the banks almost do not offer free services (separated from the current account) and refrain from presenting the terms of the services in a transparent and clear manner. The banks thereby reduce customer involvement and act in a way that may harm competition and the public. The banks, for their part, benefit from the little competition in the retail sector, and this was manifested, among other things, in the increase in their deposit margin in this sector.

A calculation conducted by the Authority found that in a situation where the deposit margin of households would change in the same way as the deposit margin of large businesses changes, the banks’ profit from household deposits would be reduced by approximately NIS 20 billion in the years 2022-2024 – an amount that could have gone to the households instead of the banks.

According to Attorney Michal Cohen, who is in charge of the competition, “The announcement of the banks as a concentration group is an important move to transfer bargaining power to the public. The instructions that will be imposed as part of it are intended to stop the behavior of banks that make it difficult to compare prices and switch to competing banks and financial institutions. The instructions will make the banking basket more flexible and prevent damage to competition.”

The announcement of a concentration group was made for the last time in the ports sector in 2013, then It was determined that the Port of Haifa and the Port of Ashdod are a concentration group In providing unloading and loading services of local containers on regular maritime transport lines. The ports were also prohibited from operating the Gulf Port and the South Port. The procedure ended in agreement with the ports.