Israel Opens Banking to New Entrants, Shakes up Credit Cards

Israeli Prime Minister Benjamin Netanyahu told Monday’s cabinet meeting: “Competition in the banking sector will ease the credit situation for small and medium business, and the separation between the major banks and credit card companies is the start of a comprehensive reform that will be good for all Israelis.” Reuters Reported.

Their credit card companies provide less than 10 percent of the credit to households, the Israeli finance ministry said.

Discount will not be forced to sell its credit card unit for four years when the issue will be re-examined.

The changes will be presented as a law to parliament for approval in the coming weeks.

Israel agreed to make it easier for challengers to the country’s dominant banks on Monday and required its top two lenders to sell their credit card businesses to further boost competition.

Israeli Finance Minister Moshe Kahlon was elected last year with a promise to shake up the banking sector, dominated by Hapoalim , Leumi, and Discount, which control about three-quarters of the credit in Israel.

“After 47 years of not having a new bank in Israel, we have paved the way for the establishment of new banks,” Kahlon said.

Under the final recommendations of a government committee, Hapoalim and Leumi will have to sell their credit card companies, although they will be allowed to issue credit cards. Shares in both banks were down around 1 percent in Tel Aviv.

The credit card firms that will be separated will be encouraged to become banks and receive incentives such as lower capital requirements than incumbent banks. They will only need initial capital of 50 million shekels ($13 million) versus 400 million until now.

Kahlon and the Bank of Israel had been at odds over banking reform for months, particularly on removing some of the central bank’s supervisory powers and transferring them to the Finance Ministry. But in the end, the Bank of Israel will retain supervision of the credit card companies.

Also, requirements will be eased on institutions wanting to provide credit to the retail market from pension funds.