Jewish Banking

Moshe Feiglin
Manhigut Yehudit
19 Elul 5770
29 August '10

Translated from the article in Israel's NRG website

Last week it was announced that Israel's Bank Hapoalim surprised all the analysts and posted a quarterly net profit of 513 million shekels. In other words, half a billion shekels plus 13 million shekels net profit for three months.

I have nothing against Bank Hapoalim. On the contrary, their commissions are cheaper than the other banks and I am pleased that they are making a lot of money. Everything written in this article pertains to all the large banks.

Something bothered me when I listened to the report of Bank Hapoalim's profits. The bank's economists explained that the surprising increase in profits actually stems from the large reduction in the debts of its loan recipients. In other words, the bank's increased profit is not because it is more efficient, but rather because we, its clients, have been more efficient in paying the bank interest on our loans.

What is the problem with that? Most of the large banks' revenues come from private households. The Mizrachi Tefachot bank, for example, boasts that over 60% of its revenues are from loans and mortgages to private households. They are proud of this fact because loans to private households are considered safe.

As we all know, a private household is not a company Ltd. It consists of people, unlimited. Most of the families in Israel live in chronic overdraft and likely pay a month's salary in interest on their overdrafts annually. Simply put, the huge profits of the banks come from the biting interest paid to them by private households.

Banks have an important role in society by virtue of the fact that they are growth engines. In other words, banks are supposed to give loans to businesses, not to individuals. When an army veteran who wants to establish a business can get a loan from the bank at a reasonable interest rate that will allow him to stand on his own two business feet, return the loan and continue to make money – the bank has done an important service.

In addition, the large banks help us to administer our money. They take a commission for this, which is fine. After all, nobody wants to stand in line and get sacks of money on pay day, like in the old Westerns.

But the banks reap only half their profits from the above admirable services. The big money comes from the "pushovers" who are enticed to take out loans for their household needs or who go into overdraft. The banks do all they can to convince their customers to do just that.

And what is the problem with that?

(Read full article)

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