Supervisor: Bank executive wages too high

In 2006, profits at the five banks in Israel rose by 35 percent to NIS 8.9 billion compared with a growth rate of 25% in the previous year.

By SHARON WROBEL
September 6, 2007 06:47
1 minute read.
rony hizkiyahu 88 224

rony hizkiyahu 88 224. (photo credit: Ariel Jerozolimski)

 
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Supervisor of Banks Rony Hizkiyahu warned on Wednesday that the rise in the banks' expenses, mainly due to exceptionally high wages in the sector, could threaten the institutions in times of lower profitability. "The wages of senior executives in the banking sector are too high in comparison to average level of wages in the economy and they need to come down. For now, the situation of the banks is good, profits are growing but there are risks and challenges when looking ahead," Hizkiyahu said at the presentation of the 2006 annual report of the Banking Supervision Department of the Bank of Israel. "I want the banks to think about high wage levels and see what they can do about it, or otherwise they will pay the price later." Hizkiyahu, a former senior executive at Israel Discount Bank, explained that he did not mean that the banks should fire their workers but, rather, that they should look into introducing early retirement programs or recruiting workers at lower salaries to bring the overall cost per worker down. In 2006, profits at the five banks in Israel rose by 35 percent to NIS 8.9 billion compared with a growth rate of 25% in the previous year. Still, Hizkiyahu said that the return on equity levels achieved by the country's banks, was lower in international comparison despite four years of strong growth in the sector. "Despite the good years, the return-on-equity levels achieved by the Israeli banks of an average of 19.5% is still lower in international comparison of more than 20%," said Hizkiyahu. Furthermore, he expressed concern over the low risk-based capital adequacy ratios of the banks, reaching an average of 10.8%, which was just above the minimum of 9%. "The banking system should increase its capital adequacy ratio in relation to the minimum required in order to improve its ability to absorb unexpected losses in the future, particularly in periods of recession," said Hizkiyahu. "We would like to see the banks increase capital adequacy ratios to 12% or 13% when in international comparison an average of 15% was the norm." In response to the question of the central bank's involvement in the Heftsiba collapse, Hizkiyahu said that the bank had received 500 requests from buyers of the Heftsiba project and was working to try and find a solution for each of them.

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