Israeli Government to force its banks to sell credit card businesses

The Israeli Government has revealed plans to force the country's two largest banks, Hapaolim and Leumi, to sell their credit card businesses, as part of a strategy to boost competition in banking and make it easier and cheaper for customers to borrow money. The banks have two years to sell control of these divisions and a third year to sell their remaining stake. At present Hapoalim, Leumi and Discount control 73% of the credit in Israel.

An Israeli government committee unveiled plans on Monday to force the country's two largest banks to sell their credit card businesses, as part of a drive to boost competition in banking and make it easier and cheaper for customers to borrow money.

Finance Minister Moshe Kahlon was elected in March with a promise to shake up the highly-concentrated banking sector, dominated the country's three largest banks - Hapoalim , Leumi and Discount. They together control 73 percent of the credit in Israel.

After receiving the panel's recommendations, Kahlon said the concentration in the banking market was stifling financial activity.

"My world view is for a free economy and minimum market interference. But here I intend to intervene," Kahlon said. "I am obligated to intervene when there are failures, and here is a failure."

Central bank Governor Karnit Flug, speaking at news briefing with Kahlon, said she supported the committee's plan but also said any changes must not threaten the stability of Israel's banks, which had weathered the global financial crisis relatively well.

"We must examine things with a long-term view and avoid moves that will cause damage that outweighs their benefit, endangering the market," Flug said.

The most significant part of the plan, which has been well-flagged, is to strip Leumi and Hapoalim of their credit card businesses.

The banks will have two years to sell control of these divisions and a third year to sell their remaining stake, Dror Strum, a former anti-trust commissioner who headed the committee, said.

The panel also recommended more flexible supervision of financial entities, such as private equity firms, which do not receive deposits but which could become competitors to banks in the retail credit market.

The proposals also include the creation of a government information technology bureau to help newcomers find clients and computerised tools that allow customers, currently reliant on their own banks, to shop around easily for new credit lines.

The committee will present a final report to the government after a public hearing.