Flug to ease restrictions on non-bank credit

Karnit Flug  photo: Eyal Izhar
Karnit Flug photo: Eyal Izhar

Non-banking companies will be able raise up to NIS 20 billion.

Agreements between Minister of Finance Moshe Kahlon, Governor of the Bank of Israel Karnit Flug, and Knesset Finance Committee chairperson MK Moshe Gafni (United Torah Judaism) will make it possible to amend the Nawi Law and dramatically increase the amount of non-banking credit for the credit card companies and other credit companies, such as Nawi Group, Peninsula, and Direct Finance.

Sources inform "Globes" that as part of these agreements, the Bank of Israel will no longer oppose amending the law, provided that a law is passed establishing a Financial Stability Committee and that the stability regulations are applied to non-banking concerns. Addressing this question late last week at the International Monetary Fund conference, Flug said, "The credit restrictions should also be applied to non-banking concerns."

In a meeting held a few days ago between Kahlon and senior staff from his ministry with Flug, Supervisor of Banks Dr. Hedva Ber, and other leading officeholders at the Bank of Israel, Kahlon said that he was seeking to increase the legally permissible amount of credit from NIS 2.5 billion or NIS 5 billion with special authorization from the minister of finance to NIS 10 billion or even NIS 20 billion for each non-banking concern.

The Bank of Israel previously opposed increasing the frameworks out of concern for the stability of the financial system, given the difference in regulation between what applies to banks and what applies to non-banking concerns, which are not subject to restrictions such as the reserve ratio and the capital adequacy ratio. At the meeting, however, Flug told Kahlon that the Bank of Israel would withdraw its opposition if a law is enacted establishing a Financial Stability Committee and the stability regulations are extended to non-banking concerns.

The capital market believes that the main beneficiaries from the enlarged framework will be the credit card companies after their separation from the banks. Following the change, the credit card companies will be able to raise the capital on the stock exchange that they need to increase the volume of credit that they grant. Only five months ago, Kahlon announced that he would increase the limit on bond raising by non-banking credit companies from NIS 2.5 billion to NIS 5 billion. The capital market believes that the dramatic increase to NIS 10 billion or NIS 20 million in less than a year is likely to give the non-banking credit companies a shot in the arm and make them more significant players in a market dominated by the banks.

At the same time, easing the restrictions will be relevant mainly to credit card companies Isracard and Leumi Card, which are due to be separated soon from ownership by Bank Hapoalim (TASE: POLI) and Bank Leumi (TASE: LUMI). Up until now, the banks provided these two companies with financial resources for their loan activities. After the separation, the connection with the banks will probably be reduced. Furthermore, Isracard and Leumi Card are expected to become important players in the credit market after the separation. Their current loan portfolio amounts to only a several billion shekels.

One of the main sources of financing for this activity could come from bond issues, but these are subject to the Nawi Law restriction. Leumi Card is already taking initial steps towards its first bond issue by submitting a third draft prospectus and starting meetings with investment institutions. A substantial relaxation of the Nawi Law restriction is excellent news for Leumi Card and Isracard, which are planning to bolster their credit activity in the coming years.

Published by Globes [online], Israel business news - en.globes.co.il - on October 14, 2018

© Copyright of Globes Publisher Itonut (1983) Ltd. 2018

Karnit Flug  photo: Eyal Izhar
Karnit Flug photo: Eyal Izhar
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