Discount Nabs Civil Servants Banking Services Tender

Israel Discount Bank yesterday surprisingly won a tender for supplying banking services to the country's civil servants, ending Bank Yahav's previous monopoly.

Yahav and Discount were the only two bidders for the tender.

Discount offered civil servants no service fees, and will deposit NIS 1.036 billion with the government for providing subsidized loans. The bank, in effect, will be replacing the government, which had subsidized bank services for its workers.

Until now, state employees could take out subsidized loans only at Yahav branches, thereby giving the bank access to about 150,000 workers. Yahav had provided the services without a tender, but the state comptroller attacked this practice.

The decision is not good for Mizrahi-Tefahot Bank, which last week acquired 50 percent of Yahav from Bank Hapoalim for $237 million to $255 million. Mizrahi-Tefahot did not participate in the tender.

The tender's results, which were a surprise since most observers expected a serious fight for Yahav's clientele from Mizrahi-Tefahot, were announced yesterday despite a last-minute petition filed by the Manufacturers' Association.

The state is expected to save NIS 400 million during the seven-year contract with Discount. During that period, civil servants will be able to receive subsidized loans only at Discount group branches including Mercantile Discount Bank. The bank believes the deal will bring in new customers who will visit branches to take out the loans.

Yahav reached an agreement last week with the Histadrut Labor Federation, which owns 25 percent of Yahav, to provide state employees with an interest-free NIS 7,000 overdraft and no account management fees for five years.

The banking sector was surprised when it became clear earlier yesterday that both Bank Leumi and the First International Bank decided not to bid. Sources at the banks claimed the recent Yahav-Histadrut accord, along with the Mizrahi-Tefahot deal, made the tender irrelevant.

"We would have had to submit a money-losing bid to win the tender," a senior banking executive said yesterday.

Discount CEO Giora Offer praised the treasury on its decision to conduct the tender, and expressed confidence that the bank would add a significant number of state employees to its customer base.

"We worked on the tender for a long time, and we have plans for bringing in new customers," Offer said. Discount's goal is to sign up tens of thousands of new customers from among the civil servant body over the next two years.

Discount's cost for the tender will be the interest it loses on the NIS 1 billion deposited with the state, which is valued at about NIS 300 million.

"We think it is more appropriate to invest the money directly in our customers and not in state coffers," Mizrahi-Tefahot said yesterday. "The tender's results are far from heralding the exodus of customers from Yahav to Discount."

However, treasury personnel believe otherwise. "This is a gala day for the culture of tenders in Israel," said Accountant General Yaron Zelekha, who had fought hard to strip the monopoly from Yahav. He added that exemptions from tenders had become a mainstay of local corruption. "It's our duty to continue to do all we can to put an end to it. Today we can mark another victory in the fight for integrity in the public sector."