The banks in Israel are currently working on new streamlining plans that will lead to the retirement of at least 2,000 employees in the coming years, it is believed. Early this year, Supervisor of Banks Dr. Hedva Ber ordered the banks to present a streamlining plan to her for the next five years by the end of this year, with clear targets at the annual level and calculation of the expected costs.
In order to motivate the banks to introduce aggressive streamlining, Ber will allow them to deduct the cost of the plans from their capital over five years. This means that the provision will not keep them from meeting the capital adequacy targets, a parameter that affects the banks' ability to increase their credit and distribute dividends. The banks are conducting talks with the Bank of Israel on this matter, because the accounting consequences of the measures are quite complicated, and will constitute a key parameter in each bank's decision about the aggressiveness of its streamlining plan.
The banks have carried out various streamlining plans in recent years, while being restrained by their inflexible work agreements with the workers' committees. The banks have closed down overseas activities, offered voluntary retirement plans, and laid off temporary and outsourcing workers, while at the same time dramatically slowing the pace at which they recruit new workers. The result is that 3,000 jobs have been cut over the past two years (excluding the increase in the number of workers at Mizrahi Tefahot Bank (TASE:MZTF)); the number of workers at Israel's five largest banks totaled 44,200 at the end of 2015, 2,883 fewer than at the end of 2013.
The Bloomberg news agency yesterday reported that Bank Leumi (TASE: LUMI), managed by CEO Rakefet Russak-Aminoach, was formulating a plan that included a cut of 1,000 jobs, mostly through a voluntary retirement program. In addition, every year in the next four years, 100 workers will leave the banks, in this case mainly workers reaching pension age. The bank's total workforce is projected to drop by 10%. These numbers are merely initial estimates.
Bank Leumi announced an aggressive program to cut 1,000 jobs over a year ago, but the bank's plan last year did not include early retirement; its work force was reduced through natural retirement, recruitment cuts, reductions in temporary staff, and the sale and closing of overseas business. Meanwhile the group's work force fell by 360 to 12,500 in 2015 (excluding subsidiaries and overseas activity). Following the Supervisor of Banks' instruction, it appears that this plan will be expanded to include voluntary retirement.
The Bank Leumi workers' committee, led by Miri Rubino, responded yesterday to the planned cuts, saying "The Bank Leumi workers' committee will not allow even one worker to be laid off, and certainly not as a result of management negligence. The workers' committee will allow the possibility of voluntary retirement only for an employee who wants it. If no worker wants it, none will leave his job. Furthermore, we regret that the plan reached the media before it was approved, and we believe that what has been published in the media will bear no relation to what actually happens." Bank Leumi said in response, "At the instructions of the Bank of Israel, the bank is preparing a streamlining plan. The discussions have not yet ended. When they have ended, the bank will report it, as necessary."
Since Russak-Aminoach became CEO four years ago, she has already led one streamlining program that included cutting 1,000 jobs, closing branches, reduction of real estate space, and closing down overseas business. She also signed a new wage agreement with the workers' committee, which cut back on the mechanism for increasing salaries automatically, but which still granted hefty raises of 4% a year. Despite all the efforts, Bank Leumi's efficiency ratios are still quite poor at over 70%, meaning that the bank's expenses account for over 70% of its revenue.
Bank Leumi is not the only bank currently working on a streamlining program; the other banks must also present their streamlining targets to the Supervisor of Banks. Israel Discount Bank (TASE: DSCT), managed by CEO Lilach Asher-Topilsky, is also talking with the Bank of Israel about a streamlining program. The bank carried out a plan for early retirement of 400 employees two years ago, which met with strong demand from its workers. Discount Bank also cut back on temporary positions and recruitment of new workers and closed down overseas activities; over the past two years, the number of its employees fell by 980. The bank is currently devising a new streamlining plan, believed to include early retirement on the same scale as the previous one - several hundred workers.
Bank of Israel's concessions are not suitable for all the banks
At Bank Hapoalim (TASE: POLI), managed by CEO Zion Kenan, who resigned in March, streamlining has been a regular part of the bank's work plans since Kenan took up his position seven years ago. The bank has cut its work force by 1,800 in recent years, while at the same time putting into effect long-term streamlining processes, such as closing down branches, closing teller windows, and streamlining work processes. The bank made a NIS 1 billion provision for its streamlining plan in 2012-2014, and managed to restrain its wage expenses and improve its efficiency ratio, beating the sector average in the process. It is reasonable to assume that the bank planned to continue its streamlining, but now, following Ber's order, it is likely to devise a more aggressive plan for next year, to be led this time by incoming CEO Ari Pinto, who was in charge of implementing the previous plans.
First International Bank of Israel (TASE: FTIN), managed by CEO Smadar Barber-Tsadik, has a poor efficiency ratio of over 70%, among other things because its disadvantage as a smaller bank, the linking of its salaries to those at Bank Leumi, and its mechanism for automatic wage increases. At the same time, in contrast to the larger banks, First International Bank has carried out no significant voluntary retirement plan for its workers, probably because controlling shareholder Zadik Bino does not like to make provisions for such plans. Furthermore, in contrast to the other banks, First International Bank has no substantial group of high-paid workers whose retirement will lead to significant savings on expenses. The streamlining carried out by First International Bank took place when it decided last year to merge UBank and Bank Poaley Agudat Israel into itself. This measure also involved laying off workers at UBank, where the workers did not have tenure. First International Bank reduced its staff by 260 last year, a significant number in comparison with its size.
For First International Bank, the concession offered by Ber in the form of less stringent capital requirements is irrelevant, because the bank's capital adequacy ratios are in any case high enough to meet the Bank of Israel's requirements, enabling it to distribute a dividend. On the other hand, despite the bank's streamlining, its efficiency ratio is still poor, and it therefore possible that if the Bank of Israel puts pressure on First International Bank, it will also embark on a streamlining plan.
Different trend
The exception to the rule is Mizrahi Tefahot Bank (TASE:MZTF). Managed by CEO Eldad Fresher, it enjoys the best operating efficiency ratio in the banking system, and it therefore prefers to expand, open more branches, and recruit more workers.
The number of workers at Mizrahi Tefahot Bank, which also controls Bank Yahav for Government Employees Ltd., another growing bank, has exceeded 6,000. The bank has instituted few streamlining measures, mostly in real estate space, which generated an NIS 80 million capital gain for it in the first quarter of this year. In personnel, it is doubtful whether Mizrahi Tefahot Bank will introduce any significant early retirement program, but it may present efficiency targets to the Bank of Israel relating to workers' salaries, since the bank is currently in talks with its workers' committee on a new wage agreement.
Published by Globes [online], Israel business news - www.globes-online.com - on May 25, 2016
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