The merger of Union Bank of Israel (TASE: UNON) into Mizrahi Tefahot Bank (TASE:MZTF) is likely to consolidate Mizrahi Tefahot Bank's status as Israel's third largest bank. In one parameter, however, the merger is expected to make Mizrahi Tefahot Bank the second largest. Mizrahi Tefahot is currently the fourth largest bank in terms of number of branches (including branches of Bank Yahav for Government Employees Ltd., which Mizrahi Tefahot controls), but if the merger goes ahead and Bank Leumi (TASE: LUMI) and Israel Discount Bank (TASE: DSCT) continue their streamlining and closing of branches, Mizrahi Tefahot is projected to overtake them and become the second largest bank in number of branches after Bank Hapoalim (TASE: POLI).
Mizrahi Tefahot currently has 187 branches, after opening three branches this year, while Union Bank has 36 branches. Mizrahi Tefahot is expected to merge Union Bank's branches located within a one-kilometer radius of Mizrahi Tefaot branches following the merger. It is estimated that half of Union Bank's branches will be closed, leaving Mizrahi Tefahot with about 200 branches after the merger. According to Mizrahi Tefahot's strategic plan, the bank was to have reached this target only in four years.
Bank Leumi and Discount Bank, on the other hand, are still closing branches at a rapid pace. A check by "Globes" shows that Bank Leumi has closed 11 branches this year, giving it a current total of 192 branches. Discount Bank, whose deployment of branches is very extensive in comparison with its size, has cut the number of its branches by 10 this year, leaving it with 190 branches (including branches of Mercantile Discount Bank, which Discount Bank owns). In other words, following the Mizrahi Tefahot-Union Bank merger, Mizrahi Tefahot will have about the same number of branches as Bank Leumi and Discount Bank. Since Bank Leumi and Discount Bank are likely to continue their cost-cutting measures, however, Mizrahi Tefahot is projected to become the second largest bank in number of branches.
The increase in the number of branches at Mizrahi Tefahot, managed by CEO Eldad Fresher, is part of its strategy of distinguishing itself from the other banks, which are reducing the number of their branches. This is also reflected in Mizrahi Tefahot's current marketing campaign on the matter. Regardless of the merger with Union Bank, Mizrahi Tefahot is scheduled to open two more branches by the end of the year, and plans to open additional branches in the coming years, mainly in the Arab and haredi (ultra-Orthodox) sector.
Mizrahi Tefahot's decision to increase the number of its branches is no small matter. It runs counter to the trend among not only the other banks in Israel, but many banks around the world that are closing branches. At the same time, Mizrahi Tefahot is gradually switching to a model of renting properties instead of owning them in order to improve its flexibility in case a change in strategy becomes necessary.
10% decrease in the number of branches
The check by "Globes" also revealed that the process of closing bank branches is continuing at full speed in 2017. Bank Hapoalim, Bank Leumi, Discount Bank, and First International Bank of Israel (TASE: FTIN) have jointly closed 33 branches since the beginning of the year. Bank Leumi and Discount Bank are closing branches at the fastest pace, and are currently competing among themselves for second place in the number of branches.
First International Bank has also streamlined considerably this year, closing seven of its 165 branches, leaving it with 158 branches, a 4% reduction in one year. Bank Hapoalim, on the other hand, is slowing the pace of its branch closings, and has reduced the number of its branches by only five this year, leaving it with 235 branches. It appears that Bank Hapoalim will continue to consistently operate the most branches of any bank in Israel.
The total number of bank branches in Israel has fallen by 140 to 1,010 over the past five years, a decrease of over 10%, compared with the figures as of the end of 2012. Banking sources predict that the trend towards closing bank branches will continue in the coming years, with the number of bank branches reaching a third lower than the 2012 figures. The sources said that the branches would not disappear, but would undergo substantial change. Far fewer basic banking transactions will be conducted at branches, which will mainly conduct more complex actions, mainly in consultation.
The process of closing branches is a result of changes in banking and a transition from customers conducting transactions at branches to using digital channels. This technological revolution is very convenient for the banks, and fits in with their plans for streamlining in order to improve their heavy expenses structure. Closing branches makes it possible to cut expenses in personnel and other items incurred by maintaining branches. In addition, in some cases, the bank owns the land occupied by the branch, so closing the branch means that the bank can sell the land. The banks are benefiting from the real estate boom, and have made profits amounting to hundreds of millions of shekels, if not more, from the sale of real estate properties in recent years.
At the same time, the trend towards closing branches in recent years has also aroused protests among some customers, especially in the market segment of older customers and in areas where there are not many branches. This protest reached the Knesset, which enacted a law stipulating closing any bank branch requires approval from the Bank of Israel.
Published by Globes [online], Israel Business News - www.globes-online.com - on November 30, 2017
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