In Bid to Spur Competition, Israel Unveils Easier Rules for New Banks

The regulations cut costs and ease procedures to break the grip of the country’s two biggest lenders, Bank Hapoalim and Leumi

A man enters the main branch of Bank Hapoalim, Israel's biggest bank, in Tel Aviv, Israel July 18, 2016
\ Amir Cohen/ REUTERS

Israel took a major step forward Sunday toward establishing the country’s first new banks in decades after the Bank of Israel unveiled new rules designed to make it easier, faster and less costly to establish a bank.

More than two years in the making, the new rules are part of a broader reform to spur competition in the banking industry and lower borrowing costs, especially for consumers. Regulators hope to break the grip of the two big banks – Hapoalim and Leumi – which control nearly 60% of Israel’s credit market.

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“The policy we have published is another step on the way to establishing a new bank in Israel and to increasing competition in the banking industry,” Banks Supervisor Hedva Ber said in an English-language statement.

“There are already people talking with the Banking Supervision Department and are in the process of submitting a request for a bank license.”

TheMarker reported two weeks ago that Marius Nacht, the billionaire co-founder of Check Point Software Technologies, is in talks with regulators about establishing Israel’s first digital bank.

Under the new rules, new banks will be required to have initial capital of just 50 million shekels ($14 million), one eighth the current minimum.

In addition, new banks will not have to meet capital adequacy requirements until their assets reach 600 million shekels. At that point they will only be required to have Tier 1 capital – the most demanding category – of 8%, lower than the 9% required of midsize banks and the 10% required of Hapoalim and Leumi.

To encourage the public’s confidence in the new lenders, Israel will offer its first-ever deposit insurance. The Finance Ministry in practice provides insurance but to date no formal mechanism has been established.

In addition, new banks will enjoy cost savings via computerization services from an outside provider that will service all new banks. A tender to award a contract is due to be published in the coming months, the Bank of Israel said.

The central bank also outlined a five-stage process aimed at shortening the time it takes to win approvals. The new policy will enable a group to obtain a limited banking license within six months and offer basic deposit and lending services.

Until now, the only path for forming a new bank was to meet all the requirements for a full-fledged commercial bank, regardless of size or the scale of its operations.

Among the new players expected to enter the market are Israel’s two biggest credit card companies, Isracard and Leumi Card, which are being spun off from Hapoalim and Leumi under government orders.

Under the new rules, the two credit card companies will be able to get a limited banking license almost immediately.

Ber said last month that the Bank of Israel expects to issue its first license for a digital bank within a year. She said the technology existed for what she called “thin digital banks” with significantly lower costs than traditional banks that could let households that never considered taking a loan do so.