Israeli banks face scrutiny over exorbitant wartime profits
3 Min Read
As "Israel's" banks report record profits during the war on Gaza, public backlash and political pressure force modest relief efforts under a Bank of "Israel"-mandated scheme.
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An Israeli occupation soldier moves on top of an armored vehicle in Gaza near the border with occupied Palestine, as seen from southern Occupied Palestine, Sunday, Aug 31, 2025. (AP photo)
While settler households and small businesses continue to carry the economic brunt of the war on Gaza, "Israel's" leading banks have reported record earnings.
Bank Leumi and Bank Hapoalim, the two largest financial institutions in the entity, posted a combined net profit of nearly NIS 17.4 billion (approximately $5.2 billion) in 2024 alone. Together with three other major banks, total sector profits reached NIS 29.5 billion ($8.8 billion).
This surge in profitability is largely attributed to persistently high interest rates. The benchmark interest rate, set by the Bank of "Israel", currently stands at 4.5%, higher than in many other countries where central banks have started cutting rates. This environment has widened net interest margins, the difference between what banks pay depositors and what they earn from loans.
For example, while customers earn only 3.5-4% on their savings, banks charge up to 12.7% on overdrafts and consumer loans. This gap has become a major driver of profit, especially as over one-third of households are stuck in chronic overdrafts and cannot reduce their debt due to wartime financial strain.
Bank of 'Israel' introduces relief scheme
Facing growing public outrage and political pressure, the Bank of "Israel" proposed a relief program requiring banks to offer financial support totaling NIS 3 billion ($896 million) by 2027. Though technically voluntary, compliance is widely expected.
Bank Hapoalim, for instance, announced a giveaway of NIS 100 ($30) in cash or two shares valued at NIS 130 to around one million customers. Bank Leumi will reduce its mortgage and consumer loan rates by 0.25% points starting in October.
Despite these gestures, critics argue the measures are modest relative to the banks' enormous profits. Many see them as a public relations effort rather than a structural fix. Lawmakers, such as Knesset Finance Committee Chairman Moshe Gafni, have blasted the banks and regulators for operating with "recklessness" and profiting while citizens face soaring living costs.
Highly consolidated financial markets
The root of the problem lies in the highly concentrated nature of "Israel's" banking sector. The top five banks control more than 90% of retail deposits, housing loans, and small business credit. Leumi and Hapoalim alone manage about 60% of total banking assets.
This concentration creates a market dominated by a few powerful players, allowing banks to keep prices high without fear of losing customers.
Foreign banks, which might normally introduce competition, are deterred by a range of obstacles, like a small market size, complex regulatory requirements, high capital demands, and entrenched customer loyalty built over decades.
