Bank Hapoalim Joins Discount in Double-digit Fee Increases

As expected, Bank Hapoalim, Israel's largest bank, today announced double-digit hikes in its fees, following close on the heels of both Israel Discount Bank - which raised its fees only last week - and of Bank Leumi - which did so last month. Unlike Discount and Leumi, which took the opportunity to introduce entirely new fees, Bank Hapoalim has so far refrained from doing so.

Hapoalim did announce the increase of 10 different fees, the most significant being the credit allocation fee on private accounts, which the bank has doubled, from NIS 2 per quarter to NIS 4. Its business account management fee was increased by 12 percent, to NIS 168 per quarter, and its securities transaction fee jumped from 0.5 percent of the transaction value to 1.55 percent.

Bank Discount created an uproar earlier this week, when it decided not only to introduce an entirely new transaction fee on trade activity in provident and mutual funds, but also to reinstate an old fee, for ownership of accounts for which credit cards are issued.

The recent flurry of fee increases in all three major banks has raised the hackles of regulatory and legislative bodies alike. "Bank Discount is trying to erode the reform in the capital market reform according to the Bachar Committee, and the public will again have to pay the price," said MKs Reuven Rivlin (Likud) and Shelly Yachimovich (Labor).

Chairman of the Israel Securities Authority (ISA) Moshe Tery is now threatening to annul distribution fees charged to mutual fund managers for sale of their funds through bank branches. According to Tery, there is a consensus for such annulment among other senior supervisors of the capital market who made up the committee for capital market reform (the Bachar Committee).

Tery and other members of the Bachar Committee accuse the banks of misleading committee members. The committee intended to recommend enabling the banks to charge their customers fees for sale and purchase of mutual funds in the first place. In response to pressure by the banks, though, which claimed that competition was too fierce and that no new fees could reasonably be imposed, that recommendation was changed. Instead of imposing fees on the public, the banks were allowed to charge the fund managers fees for the sale of mutual funds - so-called "distribution fees."

As far as the members of the Bachar Committee are concerned, this was a fundamental concession, agreed to because of the banks' insistent claims that they could not charge their customers new fees, and nor was it correct to do so at the outset of a reform. And yet, lo and behold, only one year after publication of the committees' recommendations, Bank Discount has suddenly imposed on its customers fees for purchase of mutual funds.

Tery, like other members of the Bachar Committee, see Discount's step as a betrayal of the committee, as well as a violation of the bank's promises to the Knesset. According to Tery, "what Discount is doing is not acceptable to us, it contradicts things that were said to the Bachar Committee, and if this is the situation, we will definitely consider canceling the distribution fees - and allow the banks to charge the public whatever fees they chose, exactly as we had intended from the beginning."

Such a step will necessitate reapproval by the finance committee - and will de facto reopen the whole issue of the capital market reform.