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Citibank said on Wednesday it has indefinitely delayed the opening of a planned retail banking branch in Israel due to the difficult economic environment. Citibank was supposed to open its first Israeli retail branch last month in Herzliya.

"Following a recent business review, Citibank will defer for the time being its plan to open a retail branch in Herzliya," Citibank said in a statement. The bank will "closely monitor developments over the coming months in the hope that the situation and operating environment will improve," it said.

Citibank said that as a result of the decision an unspecified number of employees will be laid off. Citibank launched a corporate banking operation in Israel in July 2000. At the time it promised to expand its operations by opening four retail branches beginning in 2001.

Citibank had already rented premises for the Herzliya branch, set up all the necessary infrastructure and recruited staff, all 21 of whom will lose their jobs. Plans to open branches in Ra'anana, Jerusalem and Haifa will also be put on hold.

Industry sources believe that Citibank invested tens of millions of shekels in its plans to launch retail banking operations in Israel and that for the moment its investments will be lost. "Its better to retreat before you start rather than open and then close. The bank preferred to call a halt now rather than take a decision it will be sorry for in the future," a source close to the bank said.

Citibank had aimed to capture 15-20 percent of the local retail banking market within five years. When the bank entered the Israeli market, the manager of its Israeli operations at the time, Nandan Mer, said that it would aim to gain a share of the retail market through natural growth, the acquisition of a local bank or through a combination of the two. Meanwhile Mer has moved on to Citibank's Moscow operations and has been replaced by Gus Felix, an American.

Wednesday's decision shows that the natural growth path at least has been put on ice. For Israeli consumers this is sad news indeed, as Citibank had planned to launch a unique service: commission-free banking. Unlike Israeli banks which charge for technical transactions, Citibank had planned to charge only for real transactions.