Israeli Banks Supervisor Determined to Inject More Competition

In an interview with TheMarker, Hedva Ber admits there are disagreements with the treasury but agreement on basic principles.

Hedva Ber, the Bank of Israel’s banks supervisor.
Ofer Vaknin

Even as she helps lead major reforms in the sector, Hedva Ber, the Bank of Israel’s banks supervisor, came to the defense of the country’s banking industry in an interview with TheMarker.

“The public conversation about the banks has become inflamed in recent years due to anger at salaries, high fees and the big loans given to big business groups,” Ber said. “But the banks and the Knesset have addressed these issues and today the system is stable and strong.”

Although she was an executive at Leumi until she took over as the country’s top bank regulator last August, Ber said she was determined to inject more competition into the system. She would do so even if the Bank of Israel and treasury didn’t always agree on how to balance more competition with rules that ensure the system’s financial soundness.

“We have a chance to change the system and advance things that will benefit the consumer,” Ber said. “There are issues we’re moving forward with on our own, and there are others we’re doing with the treasury. Even if we don’t agree on everything, we’re building the infrastructure for great competition.”

With Ber’s support, the government’s Strom committee is preparing recommendations on bank competition, including forcing the biggest lenders – Bank Hapoalim and Bank Leumi – to spin off their credit card units in the hope they would become full-fledged banks. But capital adequacy requirements would be eased, along the model adopted in Britain.

Ber admitted there were differences over how much to lower the requirement, with the central bank saying it can be no less than 8% and others calling for 4.5%. She said 8% would not be a deterrent to the credit card companies to turn themselves into banks.

“The requirements for capital adequacy will be eased to 8%, but this is not something acute, because the capital adequacy of these companies is 17% to 19%,” she said. “They have accumulated a lot of equity; for example Isracard has 3 billion shekels [$800 million] and Leumi Card 1.7 billion.”

As to who would buy the companies, Ber said she was open to “almost anyone,” barring insurance companies and big holding groups.

“Ordinary companies and private equity funds can. I don’t know if there will be a lot of takers for the [credit card] companies,” she said. “We have already had four groups – some from overseas, some from Israel – that have expressed genuine interest, but we still don’t know if they’re interested in getting a license to turn them into banks.”

Ber said she was determined to lower the banking system’s costs in information technology, which now sets the system back a combined 5 billion shekels a year – the second-biggest expense after labor costs.

One way would be for new banks, perhaps joined by the existing smaller lenders, to create a joint IT operation, she said.