The Banking Association on Sunday rebuffed public criticism that the banks are failing to pass on interest-rate cuts to businesses and consumers. "The banking system has increased the credit volume in recent years, but it cannot make up for the collapse of the nonbanking credit sector, which has grown to nearly half of the credit market but has now completely dried up," Banking Association director Moshe Perl told the Knesset Economics Committee. "There is no tension between the banks and the business sector. "The banks are asked to protect the public's interest and the public's deposits, and need to act conservatively to avert a collapse at a time of a credit crisis as risk levels are growing as a result of the economic and financial crisis." Perl acknowledged that in 2008 there was a 0.2 percent par between the monetary interest-rate cuts of the Bank of Israel and the interest the banks were charging their customers. Last year, the central bank lowered the base lending rate by an accumulative 1.5%, while the banks cut their rate to the public by 1.3% on average. Banking Supervision Department official Dudu Zaken told the committee the par had widened recently because of the rise in risk levels of banks, companies and governments worldwide. Ruby Ginel, head of the Manufacturers Association of Israel's economics division, told the committee the findings from a comprehensive survey of 320 companies had found that 70% of the respondents were having severe difficulties in obtaining new credit lines from banks or other sources. Yehuda Talmon, president of the Lahav Israel Association of the Self-Employed, told the committee the biggest problem in the economy, in particular for small- and medium-sized companies, was the unequal distribution of credit, since more than 70% of credit goes to just 1% of companies. Last week, central bank officials said the latest figures from December suggest that the banks were increasing lending and starting to lower the cost of credit, but it was still insufficient to make up for the collapse of the nonbanking sources. Last year, bank lending grew 11.5% to NIS 367 billion, the fastest pace in nine years. Over the past four months the central bank has lowered interest rates from 3.75% to 1%, but the cuts have had a limited effect on boosting the economy as banks are concerned about higher risks and aren't passing on the full extent of the reductions. "On January 26, the Bank of Israel governor cut interest rates by 0.75% to a record level of 1% to help the economy cope with the repercussions of the global economic crisis," Israel Consumer Association director Ehud Peleg said in a letter to the committee that was also sent to media outlets. "But the banks' lending rates to private customers were not changed in some cases, and in other cases they were even raised. "We are again witnessing a situation in which the banks are showing that they are not acting in the public's interest but are mainly trying to increase profits by cynically taking advantage of the economic situation of the consumer and the global crisis's impact on the Israeli economy."