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The Supervisor of Banks warned on Wednesday that the trend of ballooning wages and bonuses for top executives in the banking sector was likely to hurt the banks' ability to keep up with emerging competition following the Bachar reforms.
"The trend toward sharply rising salaries, and the extraordinary ones paid at the executive levels, are poised to keep pushing wage costs higher and bring them to a level, which is likely to hurt the banks' competitiveness in an increasingly dynamic financial market," Yoav Lehman, the Bank of Israel's Supervisor of Banks said, at the Globes conference on finance, banking and insurance in Tel Aviv.
Bank Hapoalim Ltd., Israel's biggest lender, paid its top executives a combined NIS 100 million. One-third of that went to Chief Executive Officer Zvi Ziv after the bank's 2005 profit climbed 38 percent. First-quarter wages at the country's fifth largest bank, the First International Bank of Israel Ltd., the only bank that has reported so far this year, increased 17%.
Lehman pointed out that more and more corporate borrowers were using the bond market and institutional investors instead of banks. In response to emerging competition, he advised the banks to utilize the good and flourishing times within the banking sector to prepare and be armed for the next cold winter instead of celebrating salaries and bonuses.
"In these flourishing times, it is important for the banks to invest in improving their organizational and operational structures and services as well as their technological information systems and products they offer," Lehman said.
Furthermore, Lehman indicated that there was a growing interest from foreign banks and financial bodies to commence their activity in Israel.
Also speaking at the conference, Finance Ministry Director-General Yossi Bachar said Israel was focusing on easing rules to attract foreign fund managers to the country.
"We will remove remaining barriers blocking the way to investment abroad and to the entrance of foreign financial institutions to the country."
As part of the initiative, the ministry is looking into allowing domestic funds to pay foreign funds a management fee for overseeing investments abroad and charge this to their clients, in a practice known as "double loading." This would apply to long-term investment funds such as pension and provident funds.
Separately, Shraga Brosh, President of the Manufacturers' Association of Israel on Wednesday gave a forecast regarding real foreign investment levels for this year, saying "2006 will be the record year of all times for real foreign investment." Brosh estimates that real foreign investment this year will increase by 67% to $10 billion compared with last year.