The comparable countries are: Austria, Belgium, Chile, Denmark, Finland, Greece, Iceland, New Zealand, Portugal, and Sweden.
Although the degree of concentration in Israel’s banking industry has declined recently, it is still high—the Herfindahl Index (H-Index) is about 0.22 percent, one of the highest among industrialized countries, according to the Bank of Israel, Israel’s Banking System, 1998).
The five largest banking groups are: Bank Hapoalim, Bank Leumi, Discount Bank, Bank Mizrahi and First International Bank of Israel.
Loan loss reserves measure the stock of accumulated loan loss provisions made each year.
However, it should be noted that loan loss provisions increased from 0.32 percent of total assets in 1999 to 0.35 percent in 2000 (Table 4).
Israeli banks before tax returns are somewhat low when compared with U.S. and U.K. banks. For U.S. banks, the before-tax ROA and ROE in 1999 were 2 percent and 23.9 percent, respectively. For U.K. banks, the before-tax ROA and ROE in 2000 were 1.4 percent and 26.8 percent, respectively.
High asset and credit growth rates often indicate a worsening in credit risk management on the part of the banks. However, in the case of Israel, banks do not seem to have lowered their standards in spite of the recent high rates of asset and credit growth.
The definition of problem loans in Israel covers more than the definition of nonperforming loans used in the United States. In order to work with similar measures, the mission defined NPLs in the Israeli case as problem loans minus loans in the special mention category. Total problem loans (in the Israeli sense) to total loans ratio for the five largest banks was 10.9 percent and 8.6 percent as of end-1999 and end-2000 respectively.
The problem loans to the agriculture sector represent a long existing problem in the Israeli banking sector. These loans were ones to the Kibbutzin and Moshavin that became difficult to repay in the mid-1980s. At the end of 1989, the first of a series of agreements and arrangements were signed between seven banking groups, the Government, and the Kibbutz movements in connection with those debts.
The mission used the calculations made by BOI in its Banking Report 2000, as its own estimates of market risk for each individual banking group. Based on five years of observations, the worst case interest rate changes estimated by the BOI were: 1.9, 0.69 and 0.44 percentage points for the nonindexed interest rate, the real interest rate, and the dollar interest rate. The worst case inflation and exchange rate changes, based on five years of observations, were 1.59 and 5.68 percentage points respectively. The worst case was defined as a case with a probability of occurrence of 1 percent or less. The difference between the stress tests undertaken by the mission and the ones undertaken by the BOI lies in the explicit inclusion by the mission of potential losses due to credit risk in the worst case scenarios.
The MOF Actuary is a senior professional with internationally accepted qualifications; however, his specialty is pensions, not insurance.
Where fundamental change, such as the introduction of more competition to the Motor Bodily Injury (MBI) market, is concerned these authorities continue to have a legitimate role.
The May 2000 “Report of the Public Committee for Income-Tax Reform”, chaired by Prof Ben Basset. The earlier report of the “Committee for Examination of Structural Changes in the Capital Market”, chaired by David Brodet.
Banks are allowed mortgage-related general insurance but not credit-related insurance.
There is one senior North American trained actuary who has specialized in pension matters for most of his career, but who does have life insurance and financial training.
A circular letter requiring the setting up of special reserves against this contingent liability was sent after the mission.
Where fundamental change is concerned, such as the introduction of more competition to the MBI market, these authorities continue to have a legitimate role.
This was largely rectified after the formal assessment date through new investment regulations.
However, it is important to see footnote  above.