Treasury to Issue 1-3 Month Notes to Compete With Bank Deposits

Zelekha proposes having a major bank provide service via Postal Bank, to compete with Hapoalim and Leumi

During June and July 2006, the Finance Ministry will be selling short-term government bonds, just one to three months in term, to compete with pakams (short-term deposits) at the banks.

Later the treasury means to expand its distribution system to the post office, announced Accountant-general Yaron Zelekha today.

Zelekha spoke during the course of a parliamentary inquiry into bank fees. He says the Bank of Israel has agreed to let the accountant-general distribute the short-term notes in the market, to dilute control of the banking sector by the duopoly of banks Hapoalim and Leumi.

Speaking of the concentration of power in the banking system, Zelekha said that competition in the retail banking sphere is especially pathetic, because of a number of obstacles in the marketplace that needed removal.

The absence of competition between the banks is due in part to the interest spreads in the banking sector, which are much higher than in the business sector, Zelekha explained and to parallel increases of interest rates and bank fees, captive customers, and the absence of incentive to develop new financial tools.

The first problem in the marketplace is the absence of an alternative distribution infrastructure, hence his suggestion to add the post office to the banking sector. The Postal Service bank has 700 branches around the country. Zelekha sees the Postal Bank, augmented by another bank, posing real competition to the duopoly.

Competition in the banking sector could commence in about a year, he said: a banking institution would offer its services via the Postal Bank.

Four banking institutions have shown serious interest in competing against banks Hapoalim and Leumi through the Postal Bank, Zelekha said, adding that altogether 15 responses have arrived. The y is studying the suggestions and will put together a plan by the end of March.

Zelekha also said he is firm in his intention to publish a tender to provide banking services to the public sector, which until now has been the sole province of Bank Yahav. For years other banks were kept away from the 140,000 civil servants and pensioners, he said: "They took a very attractive market segment and gave it without tender and without compensation to Bank Hapoalim" (which is one of the owners of Yahav). "We are determined to complete the tender, despite the wrath of interested parties. The tender will allow the entire banking system to compete over that market segment."

Zelekha also proposes to reform the credit card sector, severing the link between these companies and the banks, and enabling cross-clearing by other financial institutions. On March 14, Finance Minister Avraham Hirchson is due to discuss the recommendations of the panel headed by Zelekha on the matter.