Jews or Arabs: which sector pays higher interest on loans?


A new research report on banking in the Arab sector indicated that there’s less competition in the provision of services to the Arab sector, compared to the Jewish sector.

The report, which was published by the Competition Authority for public comment on May 15 for the first time, shows that the study identified a significantly higher concentration in the provision of services to clients from the Arab sector.

The total market share of the three leading banking groups in the Arab sector approaches 90% compared to about 70% in the Jewish sector.

Additionally, it was found that customers from the Arab sector pay a higher interest rate on credit (both credit for households and credit for small businesses), even when both have similar loan and risk characteristics.

It was found that the interest rate on consumer credit in Arab bank branches is on average about 10% higher compared to that in Jewish branches and the interest rate on credit for small and micro businesses is on average about 7% higher, at the same risk level.

And, it can be seen that for each level of risk, the interest rate in the branches of the Arab sector is, in most cases, higher than branches in the Jewish sector. This fact is maintained even when examining other risk indexes.

Umm el-Fahm (credit: Wikimedia Commons)

Arab sector bank braches yield lower revenues, study finds

The study also examined the incentives of banks that aren’t active on a significant scale in Arab communities to expand their activities there. High concentration in the provision of services together with high credit prices were apparently expected to stimulate the expansion of such activities.

Data showed that branches in Arab communities yield lower revenues for banks, mainly due to problems in setting up mortgages for properties in Arab communities. So, banks have little incentive to open new branches in these localities. 

In light of this, it’s possible that implementing a solution to the problem of acquiring mortgages on properties in Arab communities will also help increase competition for other facets of the “basket of banking services”, in particular consumer credit.

It should be noted that in recent years, several reforms have been promoted to increase competition in the banking system, including banking reform and credit data law.

 Even now, the Competition Authority is working together with other partners in the government with the aim of promoting additional reforms, such as: promoting the regulation of the practice of payment services; increasing accessibility of lenders outside the traditional banking sector for credit sources and more. 

These measures aim to increase competition in the banking system for the benefit of the entire population, and should also help customers in the Arab sector.