Finance minister requires Israel Discount Bank to spin off its credit card business

Israel’s fourth-largest bank needs to sell CAL as part of government policy to boost competition in the consumer credit market, Smotrich says

Sharon Wrobel is a tech reporter for The Times of Israel.

A man stands at a cash machine of the Israel Discount Bank in Jerusalem, on July 1, 2013. (Nati Shohat/Flash 90)
A man stands at a cash machine of the Israel Discount Bank in Jerusalem, on July 1, 2013. (Nati Shohat/Flash 90)

Israel Discount Bank Ltd., the nation’s fourth-largest lender, will need to divest its credit card business CAL as part of government policy to spur competition in the credit and banking sectors, Finance Minister Bezalel Smotrich announced on Thursday.

Smotrich said he decided to draft modified regulations that will require Discount Bank to sell its credit card business, which in turn will allow a new player to enter the overly concentrated credit market and lead to increased competition for households and small businesses.

“This step, combined with additional steps that we will take soon, will lead to a competitive credit market and will contribute to economic growth,” Smotrich said.

Smotrich has passed draft regulations to Bank of Israel Governor Amir Yaron, who has given his consent, and they now await the approval of the Knesset Finance Committee, the Finance Ministry said in a statement.

A committee had been set up to make recommendations on the matter, consisting of representatives from the Bank of Israel, the Competition Authority, the Capital Market Authority, and the Finance Ministry. Seven of the eight committee members recommended that the finance minister exercise his authority to lower the threshold set by law for defining a “bank with a wide scope of activity,” in a manner that will require Discount Bank to spin off its holdings in CAL. The committee concluded that the move would increase competition and reduce concentration in the banking system, including in the consumer credit market.

Discount Bank owns 71.8% of the equity in CAL and the remainder of the credit card company’s shares are held by First International Bank of Israel (FIBI). Commenting on Smotrich’s order, Discount Bank said that “the decision to separate CAL from Discount, which still requires the approval of the Knesset Finance Committee, is wrong, and certainly will not increase competition in the banking system.”

An illustrative image of a stack of credit cards. (alexialex; iStock by Getty Images)

“The Discount Group will continue to generate significant value for its shareholders even in the face of this decision,” the bank said in a statement.

Smotrich’s decision comes after Israel’s two largest lenders, Bank Leumi and Bank Hapoalim Ltd. were forced to sell their credit card units in recent years in accordance with the Law for Increasing Competition and Reducing Concentration in Israel’s Banking Market. The law is part of a reform based on the recommendations of the Strum Committee which was formed in June 2015, and includes major changes aimed at increasing competition such as allowing non-banks to provide credit to consumers, and separating the ownership of credit card companies from that of banks.

Smotrich also announced plans to appoint a ministerial committee tasked with examining whether there is an issue with large institutional bodies having control of debit card companies. The committee, which is expected to submit its recommendations in the next few weeks, will be set up in view of the “potential impact of recent developments in the ownership structure of the separated credit card companies,” the ministry said.

Earlier this month, Harel Insurance Investments & Financial Services Ltd. made a bid to acquire Israeli credit card business Isracard in a deal valued at NIS 2.7 billion ($790 million). Meanwhile, Clal Insurance Enterprise Holdings Ltd. is in the process of buying Israeli credit card company Max from its controlling shareholder US private equity firm Warbus Pincus LLC in a deal worth NIS 2.5 billion.

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