Any survey of the Israeli economy published in recent years has repeated this mantra: bringing the Arabs and haredim (ultra-orthodox Jews) into the workforce will generate the next quantum leap. The banks understand the challenge, but adopt different approaches. There are banking groups that deal with Arabs and haredim within their bank, while others have opened special banks for these sectors. However, only one bank, Mercantile Discount, sees these sectors as its main target market, largely thanks to its CEO, Jacob Tennenbaum.
Mercantile Discount has always focused on the Arab population. In 2006, Tennenbaum, until then CEO of Bank Pagi, was appointed its CEO. He gave Mercantile Discount a facelift, restructured it, and set out a new policy, the main plank of which was rapid expansion of its retail operations, including marketing to the haredi sector.
"The haredim are on the brink of a great breakthrough into the economy," says Tennenbaum. "They are too big to remain self-contained. There is now legitimacy, and a need, to go out to work so that the family will be economically self-supporting. We are seeing an increasingly large number of haredim studying in colleges adapted for their special needs, and more and more of them are entering the workforce. At a certain point we will reach a watershed, and then there will be a flood."
What about the scholarly society?
"The society of scholars will continue. There will always be those who will continue to study, and the scholars must be jealously protected. Others will work, exactly as happens in the US."
How does Mercantile Discount operate in the haredi sector?
"Our goal is to be the leading bank in the sector. That will take us time, but we have made very rapid penetration, such as is only possible when you have the appropriate knowledge and experience, if you know how to speak the language and are familiar with the mentality. Today, we have ten branches in the sector, and we are taking ever greater market share as we complete branch deployment. We are very strong in Jerusalem, and we are opening another branch in Ramot."
Give an example of haredi mentality.
"The spending structure of the haredi sector is different. Not entertainment, trips overseas, and telecommunications, but food, clothing, and education. This is a communal society, and educational institutions are the heart of the community. An educational institution is a non-profit organization that manages a large budget. This is not standard banking, and you have to offer special solutions. We, who understand the importance, assist them in managing their financial lives. After the educational institution there comes the entire community."
As a financier, how do you deal with the housing problem among the haredim?
"The haredi population may be at a lower socio-economic level, but they have an inbuilt sense of responsibility not to enter into commitments they do not think they can meet. We have learned how to analyze their repayment capacity, the level of loan finance is up to 60%, and an average apartment costs less. In practice, the default percentage among haredim is no higher than among the population at large.”
Aren't you competing with the charitable funds?
"The charitable loan fund is a wonderful institution, but it gives quick bridging loans, let's say 10,000 shekels, for a few months. This is a low volume, short-term solution, not an alternative to managing a household economy or a solution for the long term."
How is it that every so often we hear of haredim falling victim to pyramid frauds?
"On the one hand, this is a highly educated community, no stranger to sophisticated activity. On the other hand, they are trusting and naïve, and so they are duped by people who promise them extraordinarily high rates of interest. It has happened time after time, and left behind many casualties."
The Arab sector is closing the gap
Since Tennenbaum became CEO, the number of Mercantile Discount branches has jumped from 63 to 79, with branch number 80 about to open shortly. Mercantile Discount is now Israel's eighth largest branch, with a balance sheet footing of NIS 24.4 billion, compared with NIS 17 billion in 2006. Deposits from the public total NIS 20.4 billion, and credit amounts to NIS 15.1 billion. In the first three quarters of 2011, the bank made a profit of on regular activity of NIS 105 million.
Let's talk about your activity in the Arab sector.
"A third of Mercantile Discount's branches are in the Arab sector, and we are the leading bank in the sector, especially in business banking. We operate cautiously and thoroughly, choosing whom we work with. The sector has changed in the past few years. Everything you knew is no longer true. The cash economy is a stereotype; the population is educated and active on the Internet. The percentage holding credit cards has doubled, the gap is steadily closing."
Are there Arabs in the bank's senior management?
"There are two Arab regional managers, and an Arab woman who is a deputy divisional manager. 35 branch managers are Arabs. I try to put a Muslim manager in a Muslim area, and a Christian manager in a Christian area."
Although Mercantile Discount specializes in certain sectors, it is also a universal bank, and thus competes with its parent, Israel Discount Bank (TASE: DSCT).
"There is no cannibalization, and we do not get under each other's feet. Discount is a supermarket; Mercantile Discount is more like a family bank. Mercantile Discount complements Discount in its areas of specialization and cerates an advantage for it there. It tries to be more of a boutique. I work with the middle market, customers whom I can give VIP treatment. In the general market, I'm not on the same playing field. I look for customers who want more of a personal service. For example, Mercantile Discount has never sent customers to a call center. The customer's call has always reached his branch, his banker. That creates a close relationship with the customer. He feels at home, not alien."
Why are the salaries of Discount bank employees 12% higher on average than the salaries of Mercantile Discount employees?
"It's a matter of length of service. Discount Bank has a higher number of veteran employees whose salaries have risen. We are a young bank in a formative period, and so the pay is lower."
Published by Globes [online], Israel business news - www.globes-online.com - on December 28, 2011
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