Banking reform to spur sector

Israel’s banking regulator published a new policy that makes it easier and faster to set up a new bank, part of a reform to spur competition in the banking sector and lower borrowing costs.

Israel has not awarded new banking licenses for decades. The top two banks, Hapoalim and Leumi, control 56% of Israel’s credit supply. Under the reform, they must divest their credit card companies by 2020 while new, smaller banks with lighter regulations are encouraged.

The new policy, published Sunday, enables a party wishing to establish a bank to obtain a limited license within six months and allows it to manage limited deposit and credit provision activities. Until now, the regulator’s policies provided only for the establishment of regular sized commercial banks.

The Bank of Israel said its new policy sets out reduced regulation for new banks with simple activities, such as retail.

These banks would be required to have initial capital of just NIS 50 million ($14 million) and gradually raise this amount. If the bank’s assets reach NIS 600 million it would be required to meet a Tier 1 capital ratio of 8.0% and total capital ratio of 11.5%, lower than the requirements of Israel’s larger banks.

“There are already people talking with the banking supervision department, and who are in the process of submitting a request for a bank license,” said Hedva Ber, the supervisor of banks.

In order to implement the policy set out, the central bank has established a Licensing and New Banks Unit, which is intended to guide the applicant through all stages of the licensing process, examine requests for bank licenses and for permits to control a bank, and supervise the new bank after receipt of the license. (Reuters)