Israel Competition Authority commissioner Michal Cohen today informed the five big banks - Bank Leumi (TASE:LUMI), Bank Hapoalim (TASE: POLI), Israel Discount Bank (TASE: DSCT), Mizrahi Tefahot Bank and First International Bank of Israel (TASE:FTIN1; FTIN5) - that she plans declaring them a concentration group in retail banking. She intends imposing orders on them in the field of deposits. Her decision is subject to a hearing, in which the banks may present their claims. Cohen will also consult with the financial regulators before making a final decision.
After publication of the Israel Competition Authority's decision, the TASE banking index remained 1.7% higher, as it had begun the day.
The decision to declare the five big banks as a concentration group stems from the fact that at the end of 2022, the five banks held 98% of the assets in Israel's banking system, with Leumi and Hapoalim together holding 57% of the assets. This is one of the most concentrated parts of the economy with mergers and acquisitions reducing the number of banks active in Israel in the past few years, until the recent entry of digital bank One Zero.
The Israel Competition Authority said, "The Competition Law gives the Commissioner the authority to determine that a limited group of people who run businesses are members of a concentration group, if in the industry in which they operate there are conditions that allow little competition, or if there is little competition in practice, and there are also orders that the Commissioner can issue that can prevent harm or the fear of actual harm to the public, or in the competition between them in the industry, or to increase the competition between them in the industry."
The banking system in Israel has barriers to entry and to transferring from bank to bank. The Competition Authority says, "The barriers to entry and the barriers to transfer in the banking system, along with its other characteristics, facilitate the stabilization of a coordinated equilibrium between players in the industry."
For example, the large banking groups have an incentive that the competition between them will be competition between "banking baskets", in which customers consume all banking services at the bank where the current account is held, instead of competition between free services (which can be provided separately and not as part of the banking basket) .
The Israel Competition Authority's solutions
The Israel Competition Authority is examining several orders that would allow, in their opinion, increased competition. For example, it is proposed to produce orders to create a free cash deposit, independent of the current account or other banking operations performed by the customer. It notes that such a solution is already on the market, with Bank of Jerusalem leading in the field, and which has significantly increased the amount of its deposits over the last year, while offering high interest rates compared with other banks. The Authority is also consider reducing barriers on transfer of deposits between banks outside of the rest of the banking basket.
The Competition Authority may also require banks to make a monetary fund available to retail customers as a non-banking product that can be used as a restraint on bank deposits. Another order could require banks to present relevant comparative information.
The Competition Authority wants to allow more entities to enter the deposits market by requiring banks to accept deposits from non-bank entities that would operate as "money centers." The non-banking entities would be able to pool funds for the general public and deposit them in banks.
Published by Globes, Israel business news - en.globes.co.il - on March 26, 2024.
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