In 2011, Bank-Bank of Jerusalem (TASE: JBNK) increased the consumer credit it granted by a factor of eight. Total loans granted jumped from NIS 48 million in 2010 to NIS 398 million in 2011. At the end of 2011, the balance of consumer credit was NIS 351 million. The bank intends to double the amount of credit granted to NIS 600 million in 2012, and to reach a consumer credit portfolio of NIS 1 billion by the end of 2013. Bank of Jerusalem's CEO is Uri Paz.
On the basis of the branches that until recently granted mortgage loans only, Paz has built a platform for consumer loans. Bank of Jerusalem charges very high interest, of 10% on average (prime plus 7.5%); the interest rate in each case is derived from risk analysis of the customer. The rate of defaults on these loans is 2%, which is high for retail loans. However, since the basic interest rate is very high, the bank's margin is about 5%. The default rate is expected to drop, so that the bank's margin will grow further.
The high margin has made consumer credit an important source of profit for Bank of Jerusalem. Since consumer credit is granted at much higher rates of interest than is charged on the bank's regular business loans, the profit on this activity is substantially higher than on the bank's other activities. Although the consumer credit portfolio is only 4% of Bank of Jerusalem's total credit portfolio, it proportion of the retail credit awarded in 2011 was 19%, compared with 2% in 2010. Paz has thus managed to compensate for the fall in profitability of other activities, such as the bank's nostro account, and for a sharp rise in the bank's expenses, caused by an upgrade of its computer systems.
Bank of Jerusalem has recently been actively seeking to expand its retail activity. It embarked on a campaign to enlarge its "closed system" activity, which enables customers of other banks to deposit money with Bank of Jerusalem without opening a current account with it. So far, Bank of Jerusalem has opened about 8,000 new accounts, and about NIS 500 million have been transferred to it from other banks. In addition, Bank of Jerusalem has begun collaborating with supermarket chain Rami Levi Chain Stores Hashikma Marketing 2006 Ltd. (TASE:RMLI). Stands for making deposits with it have been set up in the chain's branches. In another collaboration, with the Israel Postal Company, the Postal Bank sells Bank of Jerusalem products.
Published by Globes [online], Israel business news - www.globes-online.com - on May 1, 2012
© Copyright of Globes Publisher Itonut (1983) Ltd. 2012