Economic uncertainty will negatively affect banks' profitability

The banks published their third quarter reports on Wednesday, November 23. 

 Israeli money bills. (photo credit: PIXABAY)
Israeli money bills.
(photo credit: PIXABAY)

The Supervisor of Banks, Yair Avidan, warned about profitability and said that with the current financial status, banks maintain capital ratios higher than the minimum capital requirements established by the supervisory authority, which ensures their stability.

Avidan, in a review of the first half of 2022, warned that uncertainty regarding the continuation of economic developments may have a negative impact on banks' profitability for fear of damage to credit quality because borrowers can’t meet their loan repayments.

According to him, with this background, the banks maintain capital ratios higher than the minimum capital requirements established by the supervisory authority which ensures their stability. 

The banks published their third quarter reports on Wednesday, November 23

The global economy and financial systems are facing a series of challenges following the coronavirus crisis, which caused severe supply chain disruptions, as did the Russia-Ukraine war.

Illustrative photo of Israeli money (credit: MARC ISRAEL SELLEM)Illustrative photo of Israeli money (credit: MARC ISRAEL SELLEM)

These supply chain disruptions led to an increase in commodity prices worldwide while inflation began to rise to levels not seen in the last decade. In response to the increase in inflation rates, the central banks and the Bank of Israel began raising interest rates. 

What do the financial statements show?

The financial statements show high returns on capital, an improvement in the connections between adequate capital, liquidity ratios and good credit quality. The Bank of Israel stated that the increase in interest rates and inflation is beneficial to the banks in the short term, thanks to an increase in income from more returns due to higher rates.

The return on equity in the first half of 2022 was 15.8%. The increase in the Bank of Israel interest rate led to a certain increase in the interest rate on public deposits. As a result, the Bank of Israel began to publish the interest rates paid by the banks, and the interest on short-term credit with a variable interest rate. 

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