New lower commission rates for clients buying and selling securities were announced by Israel's five largest banks on Tuesday, but the expected breakthrough in slashing the official rates turned out to be largely cosmetic.
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The banks commissioner instructed the banks to publish new rates after a panel, assigned to examine new ways to increase competition in the banking sector, found that official rates issued by the banks were double to four times the average rates actually paid by customers due to deep discounts selectively offered. The panel viewed the practice as detrimental to the transparency with which banks should be treating their customer base.
To achieve the desired result, the banks would have had to slash their rates by about half according to the committee's findings. But the new rates reflect a 12% decrease on average, leaving the gap wide open in comparison to reduced rates achieved by customers who negotiate a discount.
At Bank Leumi and the First International Bank of Israel (Benleumi), the published charges on securities transactions was reduced from 0.7% to 0.65%; at Bank Hapoalim from 0.7% to 0.6%; at Mizrahi Tefahot Bank from 0.72% to 0.64%; and at Israel Discount Bank from 0.69% to 0.54% -- the sharpest cut of all.
Discount Bank's rate cut is in keeping with its strategy to increase market share among banking customers with investment portfolios. Following an advertising campaign last year, the bank indeed boosted its share of trading among retail customers from 12% to 15%, but this isn't expected to have been accompanied by a boost in revenues due to last year's sluggish trading volumes. Discount may have increased its share in the pie, but the pie itself shrunk.
Cheaper through the Internet
Another innovation introduced by the banks commissioner was requiring banks to publish separate rates for customers performing securities transactions independently through their websites on the Internet, without relaying the order via a banker by phone or in person. All the banks published lower rates for Internet transactions: Mizrahi – 0.52%; Leumi – 0.50%; Hapoalim and Discount – 0.40%; with Benleumi offering the lowest official rate of 0.30%.
According to banking sources, customers are often successful in bargaining their bankers down to charging just 0.1% in commissions, the same rate generally charged for customers with independent accounts at the investment houses.