Bank Hapoalim will have to eliminate hundreds of jobs by the first quarter of 2014 as it struggles to maintain a double-digit return on equity, CEO Zion Kenan said.
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In the first quarter, Hapoalim posted a 9.5% return on equity, missing its target for the year of 10% to 12%. The bank, which had 11,116 employees at the end of last year, saw its shares fall 1% in late-afternoon trading Sunday.
Shrinking revenues and margin erosion stemming from tightened regulations and low interest rates are buffeting Hapoalim. Banks are struggling to find new revenue sources as regulators prevent them from moving into new fields.
"We are entering a difficult period. The banking system has changed, regulation is tricky, and we need to prepare ourselves for this," Kenan told a conference of mid-level managers and branch managers.
"The year 2014 will be even harder on both a local and global level due to regulatory and media pressures, implementation of the Zaken Committee's recommendations [on boosting competition among banks], and further directives from the regulators and legislators."
Kenan said the bank's plans for 2014 through 2016 would include cost-cutting on top of the cuts at its branch network between 2009 and 2012 and the streamlining under way at headquarters.
Two weeks ago Hapoalim said it would pay quarterly dividends for the first time since the global financial crisis in 2008. It will be paying 15% of net profit, putting pressure on management to meet its efficiency goals.
Hapoalim is struggling as the Bank of Israel's banks supervisor, David Zaken, moves to boost competition in the industry. Zaken has also adopted the Basel III guidelines requiring banks to raise their ratio of Tier I core capital to risk assets to 9% by the beginning of 2015.
Zaken's main measures to increase competition are likely to go into effect next year. Banks will have to list on their websites the average interest rates paid on deposits so customers will be able to compare. Also, the Israel Securities Authority is pushing for the launch of a new product – a deposit and loan fund abbreviated as kapam – to compete with bank deposits.
In another major move, banks will issue special IDs card letting other banks rely on customers' credit ratings in providing loan offers.
Zaken also plans to let customers open accounts online and transfer to another bank at the push of a button. Meanwhile, the cost-of-living protests have increased pressure on banks to reduce fees.