Less than a week into her new post as Bank of Israel banks supervisor, Hedva Ber unveiled three major policy initiatives Tuesday, including support for a plan to get the two big banks to drop their credit card operations.
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Speaking at a conference sponsored by the Calcalist financial daily, Ber also called for deposit insurance and permission for the banks to sell insurance.
“We will work to separate the credit card companies from the banks whose share of the retail credit business is more than 20%,” she said. “That means that the two biggest banks will be required to sell control of their credit card units and will be barred from operating or processing credit cards, though they can continue issuing them.”
Ber’s initiative represents a change of course for the Bank of Israel, which had consented earlier this year to a government committee to examine the issue but made clear it looked askance at the idea. The central bank is concerned about undermining the banks’ financial strength by depriving them of revenues and creating new competition.
Ber’s proposal, however, falls somewhat short of the ideas of the government’s Strom committee and Finance Minister Moshe Kahlon, who had lobbied to create the panel. The terms Ber spoke about would only apply to Bank Hapoalim and its Isracard unit and Bank Leumi’s Leumi Card subsidiary.
Israel Discount Bank and First International Bank of Israel would be able to retain its Cal subsidiary.
A committee member who spoke on condition of anonymity said Ber didn’t go far enough. “The committee won’t be satisfied with divesting the two big banks and will also demand that Cal be separated from Discount and FIBI,” he said.
Ber made clear, however, that she wanted to let Cal remain bank-owned as part of the strategy of increasing banking completion.
“The initiative will support competition on two levels — by encouraging non-bank lending by the two entities spun off from the banks and by competition within the system because it will strengthen in relative terms mid-sized banks that will continue to control a credit card company,” Ber said.
The standalone credit card companies would become competitors to the banks in offering loans to consumers and small businesses, and would be authorized to raise money in the bond markets to finance their lending. They would continue to be supervised buy the banks supervisor, Ber said.
Regarding deposit insurance, Ber said her plan called for the banks to allocate funds that would stay with the Bank of Israel and be used if a lender ran into deep difficulties. No taxes would be imposed to cover the program.
Ber said deposit insurance would help strengthen the banking sector and enhance confidence in it.
As for insurance-policy sales, Ber said the change would increase the banks’ revenue sources and provide competition to independent insurance agents.
Of the three reforms, insurance is the only one the banking industry has been keen on, but it has failed over the years to overcome the lobbying power of insurance agents.
Ber said she planned to discuss the idea with Dorit Salinger, the Finance Ministry’s commissioner for capital market, insurance and savings, but it is not clear if the two can come to terms.
The credit card issuers are a major source of earnings for Israel’s three big banks, with Cal accounting for 21% of Discount’s profits and Leumi and Hapoalim each deriving about 14% from their units.
Ber did not talk about a timetable for the credit card spinoff, but the Strom committee is due to publish its recommendations in the next few weeks. Ber also left open the question of who would control the newly independent credit card issuers — whether they would issue shares and trade on the stock exchange or be sold to a single buyer like an insurer or financial services company.