JERUSALEM, Sept 1 (Reuters) - Israel’s two largest banks, Hapoalim and Leumi, will have to sell off their credit card businesses as part of a plan by the country’s banking regulator to boost competition in consumer and business credit.
Hedva Ber, who took over last week as supervisor of banks at the Bank of Israel, said she wanted to separate credit card companies from banks whose share of retail credit is greater than 20 percent.
“This means that the two large banks will be required to sell the ownership of their credit card companies, and will be prohibited from working in the operating and acquiring of credit cards, though they will be able to continue issuing credit cards,” Ber told a business conference on Tuesday.
Hapoalim owns Isracard, Israel’s largest credit card issuer, while Leumi owns Leumi Card.
Hapoalim and Leumi declined to comment.
Israeli authorities are trying to increase competition in the country’s banking sector to help to reduce costs to customers and to spur the flow of credit to small businesses.
Finance Minister Moshe Kahlon wants to shake up the country’s concentrated banking system in which Hapoalim, Leumi and Israel Discount Bank control about 70 percent of credit.
In June, Israeli regulators set up a committee led by former anti-trust commissioner Dror Strum to spur banking competition to cut fees and charges.
Ber said her plan to separate off the credit card businesses would support competition in banking and also introduce so-called non-bank providers into the market. The proposals would also be part of the framework of the Strum committee.
“We expect that those separated entities will expand the supply of retail credit and credit to small companies, and will contribute to competition in those areas,” Ber said.
“Competition can be promoted without negatively impacting the stability of the banking system,” she said.
Ber also said she would allow banks to distribute insurance products and permit institutional investors and non-bank entities, such as investment firms and pensions funds, to provide finance for retail and small business customers which would help to lower the price of credit.
She said new technologies would help to increase competition in the supply of credit to business and consumers.
“It may be expected that there will be some blurring of the boundaries between institutional investors, banks and new participants in the system,” Ber said.
Kahlon said he was pleased that he and Ber saw eye to eye on the need to separate credit card firms from banks.
“There is broad consensus that currently there is insufficient competition to small businesses and households and a lack of efficiency in the banks,” Kahlon said, adding that such reforms would lower the price of banking services. (Reporting by Steven Scheer. Editing by Jane Merriman)