JERUSALEM, July 3 (Reuters) - Israeli Finance Minister Bezalel Smotrich said on Monday he was opposed to legislation that would require banks to pay interest on checking accounts, despite calling the conduct of the top banks "scandalous" in their treatment of customers.
Speaking at a session of parliament's finance committee, Smotrich rebuked the banks for raking in huge profits from a jump in interest rates in the past year, and criticised Israel's banking regulator for being too slow in ensuring higher rates are passed through to consumers and not just to mortgages and other loans.
But he stopped short of endorsing steps that could encourage the banks to stop lending.
"Interest rates were raised to fight inflation and maintain the economic strength of the country and not for the banks to rake in capital," Smotrich said. But he added: "We need to be careful of populist steps that may do more harm than good."
"The conduct of the banks is scandalous. We are looking for the exact tools that will provide an answer to the populations that need it on the one hand, and will not fuel inflation on the other hand," he said.
Parliament member Yinon Azulay last week proposed a bill which would force banks to pay interest on checking accounts and give final approval on setting the rate to the finance minister, but after the central bank chief said it would threaten the Bank of Israel's independence, a preliminary reading of the bill was postponed.
Since then, Israel's banks including the two largest, Leumi and Hapoalim, and third-largest Mizrahi Tefahot, have unveiled a series of measures that pay interest on checking accounts and charge lower interest on below-zero balances.
Azulay told the committee his bill had pressured banks to act before they were forced to by law.
He and other committee members heavily criticised Bank of Israel Governor Amir Yaron for being lax on the banks for their inflated profits from interest rates that have risen to 4.75% from 0.1% last April, and for not accepting an invitation to speak at the panel.
The Bank of Israel did not immediately respond to a request for comment.
Smotrich said he still plans to move forward on taxing banks' excess profits and enacting other measures that would have "maximum benefit and minimum damage" in providing citizens with more disposable income at a time when the cost of living has soared.
Israel's banking system is highly concentrated and controlled by five banking groups. (Reporting by Steven Scheer; Editing by David Holmes)
