Israeli Banks Thrive Amid Ongoing Struggles

For many families and small businesses in Israel, the current situation is grim, yet it’s a lucrative time for the banks. Over the past 22 months of conflict, these financial institutions have continued to reap significant profits.

This month, major banks in the country announced impressive profit growth, boasting double-digit percentages in their latest quarterly reports. This trend has allowed them to showcase their earnings to shareholders proudly.

However, for many Israelis, the reality is harsh. The stark contrast between the wealth accumulation of the banks and their struggles feels almost like a betrayal. Working families are grappling with inaccessible opportunities while the financial institutions seem to capitalize on their difficulties.

Households and businesses, including military reserves, have been heavily borrowing, contributing to high interest payments and fees. Data suggests that this boost in borrowing has significantly padded bankers’ incomes, while consumers earn minimal returns on their deposits—far less than what they are paying in fees.

Michelle Stroczynski, a former research director at the Bank of Israel, points out that the public is increasingly frustrated with the banks. She emphasizes that the vast profits they’re earning reflect a disparity between what banks charge for loans versus what they pay on deposits.

Strawczynski, now a professor at the Hebrew University of Jerusalem, has expressed concern over the justification of these profits, stating, “It’s clear that such gains are unjustifiable when they stem from significant differences between credit costs and deposit returns.” She advocates for additional taxes on excessive profits as a reasonable solution.

Strawczynski suggests implementing a progressive corporate tax on banks’ profits, proposing that such measures could help fund public services. Given the current economic climate, these ideas could be beneficial in distributing banks’ windfall more equitably.

Recently, the public took notice when banks attempted to appease customers by distributing shares or small grants, even if just symbolic, amidst soaring profits. For example, Bank Hapoalim reported a profit of 2.5 billion shekels ($740 million) in the second quarter of 2025—a 14% increase from last year—driven by growth in fees and funding revenue.

Meanwhile, the effects of rising interest rates and the prolonged conflict are creating significant strain on ordinary households, with many spending far beyond their means. Reports indicate that small businesses are suffering immensely, facing closures amid ongoing challenges.

The total number of businesses that have shut down since the onset of conflict may rise to around 80,000 this year, a stark increase from the previous year’s count. The limited choices for borrowers contribute to this issue, as the banking sector remains heavily concentrated among a few large institutions.

On the other hand, recent recommendations from the Finance Ministry are seen as a potential step forward, aiming to reduce market concentration and spark competition. Yet, some, like Stroczynski, remain skeptical about whether these measures will truly disrupt the status quo.

Despite the ongoing challenges, there are glimmers of hope as new digital banks enter the market, offering better rates to consumers. However, the path to meaningful competition may still be long and arduous, particularly in a landscape that has proven resistant to change.

Ultimately, there’s widespread agreement that bolstering competition is essential—not only for fair pricing but for ensuring consumers aren’t left behind. As small businesses play a crucial role in providing jobs, their survival might hinge on reshaping the banking landscape.