The Association of Banks in Israel

Implications of the implementation of the Zaken Committee regarding credit rating on small businesses

Uriel Dagan, CPA, MBA
The recommendations of the Zaken Committee (2013) stipulated, amongst other things, that alongside
the rating of customer's bank credits, disclosure should be made. These recommendations were
based on the intention to give customers the possibility of conducting a market survey and
acquiring credit at a lower cost among many entities, using the rating as a common denominator.
Additionally, the aim was to obtain increased transparency.
This paper, in the first instance, seeks to examine the premise of the committee's recommendation.
In order to examine this, our study looked at a sample of small business owners. Looking at this
sample enabled us to firstly calculate their hypothetical personal credit rating. We then went on to
examine whether there exists a correlation between their theoretical credit rating and their current
situation. After examining the premise of the committee's recommendation, this paper also studies
whether the application of a personal credit rating to small business owners in Israel is capable of
streamlining the distribution of credit in the economy.
Regression analysis of the sample shows a statistically insignificant result with respect to the
application of a credit rating in a regulatory manner and meeting the regression test. This conclusion is
consistent with previous studies and explains that whilst there exists a positive relationship between
the risk to the bank and the price, there is a statistically significant improvement of the distribution of
credit in the economy. fte findings also show a statistically significant result whereby the application of
credit ratings does not lower the already low credit prices, and will not necessarily increase the already
large supply of credit. In addition, the findings show that the application of credit ratings may have
serious consequences for the individual lives of citizens of the country. This paper explores these
findings in more detail and will, in turn, make recommendations based on them.
Uriel Dagan, CPA, MBA, Chief Financial Officer, Tower of David – Museum of the history of