In recent weeks, the governor of the Bank of Israel, Amir Yaron, has warned the country’s government that its proposals for sweeping judicial reform could damage the economy.
The changes would erase democratic checks and balances, potentially leading to a lowering of the country’s credit rating and scaring away foreign investment. The performance of the Israeli economy is especially linked to the volume of foreign investments in the tech industry.
Last week, some Israeli banks also expressed concern that the government’s planned reforms could have a negative effect on the economy.
Bank Hapoalim CEO, Dov Kotler, stated that banks have started to see an outflow of funds, with various savings accounts being moved from Israel abroad.
Such developments could have an impact on the banking system, which had strongly rebounded from the Covid-19 pandemic. Sector profitability improved after a bleak 2020 when credit default provisions depressed profits and loan growth slowed.
In 2021, Bank Hapoalim increased its pre-tax profits by 120.43% to $2.53bn, and Bank Leumi reached $3bn, an annual growth of 178.61%. Israel Discount Bank also reported a triple digit increase in its pre-tax profits, while Mizrahi Tefahot Bank saw an increase of 99.52%.
It remains to be seen if the government will move forward with its reform plans despite the strong opposition from civil society.
