Global Banks Approach Israel Over Sale of Credit Card Units

  • Regulator Hedva Ber doesn't say which banks expressed interest
  • Israel planning to overhaul tightly-regulated banking sector

Global investment banks have recently expressed interest in the sale of Israel’s two biggest credit card businesses, according to the country’s chief banking regulator.

The banks requested more information on potential opportunities once lenders Bank Hapoalim Ltd. and Bank Leumi Le-Israel Ltd. sell their credit card units as part of a domestic banking overhaul, Israel’s Supervisor of Banks Hedva Ber said in an interview at her Tel Aviv office. She declined to identify the banks.

Hedva Ber

Source: Dafna Tal

“They want to know what kind of market opportunities they will have, what will be the regulation in all aspects,” said Ber, previously an executive in charge of risk at Leumi. Some foreign investors have also expressed interest in the sales, she said.

Israel is marketing the forced sales as an opportunity to establish a presence in Israel’s tightly-controlled credit market just as it begins to open up, and rules are being relaxed to make a purchase more attractive. One option favored by Ber is to allow buyers to turn the credit card companies into lenders capable of competing with Hapoalim and Leumi.

“The credit card companies are the closest financial institutions to becoming a bank, or a digital bank, if they choose to,” she said. “We will help and give them a gradual path to comply with bank regulations. For example, they don’t have to immediately adhere to the core capital ratios and liquidity ratios required by banks.”


Hapoalim and Leumi are strongly resisting the reforms led by Finance Minister Moshe Kahlon, saying they could endanger a stable sector that weathered the 2008 financial crisis. Shares of Leumi rose 0.4 percent at the close in Tel Aviv on Sunday, while Hapoalim fell 0.5 percent.

Kahlon says new credit providers are needed to lower banking costs, and a government panel headed by former antitrust chief Dror Strum is meeting this month to finalize recommendations on how to achieve it. Both the ministry and the Bank of Israel support the plan to strip Leumi and Hapoalim of their card businesses, which account for about 10 percent of revenue.

In the interim recommendations, the committee said the banks would have to sell control within two years of the measure being adopted. But the central bank and some committee members, as well as Kahlon, have failed to reach an agreement on three key issues.

Whereas the minister wants to form an independent regulator to oversee credit card businesses, the Bank of Israel is insisting on maintaining oversight, saying they pose systemic risks. Some panel members also want to bar Israeli banks from issuing new credit cards after the units are sold, an idea the central bank says would merely transfer the existing oligopoly into different hands.

There’s also disagreement over whether to force Israel Discount Bank Ltd., the country’s third-largest lender, to sell its card business.

‘Substantial Easing’

Forcing the banks to sell is the fastest way to create competition in the market for household and small-business loans, said Avi Ben-Bassat, a former finance ministry director and a member of the government panel. Allowing them to immediately issue a new credit card risks sapping that competition in its infancy, he said.

If Ber is willing to dramatically ease regulations, he and other committee members may be willing to support keeping oversight of the credit card companies with the central bank, Ben-Bassat said.

“The new supervisor has shown she is truly trying to make some major changes,” said Ben-Bassat, also an economics professor at the Hebrew University of Jerusalem and at the College of Management Academic Studies. “But we need to see a more substantial easing of the regulatory environment for us to be convinced that the central bank will encourage, and not stifle, competition.”

Ber insists she is ready for change, and that the central bank has already stated it will reduce regulations for new credit card companies, including setting capital ratios to a lower level than that of small banks in Israel.

“All of that is done by us to support the companies in becoming competitive players in the Israeli financial markets,” she said.

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