Israeli Banks Having Trouble Making a Shekel Abroad

The problem is heavy costs and an inability to achieve economies of scale outside Israel, say experts.

Sivan Aizescu
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Sivan Aizescu

Israel's banks have serious trouble making their overseas operations pay, according to their financial statements for 2012.

Most do perfectly well in their Israeli business. But once overseas, they are having difficulty competing with the world's bigger banks.

Bank Leumi for example reported that last year, its Israeli subsidiaries averaged a return on equity of 7.5%  - and that its foreign subsidiaries averaged a mere 2.9%. The return on equity by its Israeli operations was more than double the return achieved in foreign lands.

The problem lies in the banks’ lack of economies of scale beyond Israel’s borders, say sources in the banking industry - and also the heavy costs involved in maintaining offices abroad and the duplication of regulatory requirements.

None of these things are special to 2012. A problem more characteristic of the last year is that Israeli exports have been declining because of difficult financial straits in Europe and the United States. That in turn affects exporters' profits, which in turn impacts the banks.

Bank Leumi's branch in New York (2006).Credit: Bloomberg / Haaretz Archive
A Bank Leumi branch.Credit: Tal Cohen