The aggregate profit of Isracard Ltd., Leumi Card Ltd. and Israel Credit Cards-Cal Ltd. (ICC-Cal) (Visa) was NIS 650 million in 2012, 2% more than in 2011. 2012 was a stormy year for the sector, during which interchange fees were reduced and the Isracard law came into effect, amid concerns about the economic slowdown's effect on the company's finances. Despite battling regulatory restrictions and worries about the slowdown, the companies were still able to generate handsome cash flows.
Bank Hapoalim (TASE: POLI) subsidiary Isracard reported the strongest growth - up 20% compared with 2011, to NIS 277 million in 2012. However, if the sale of Mastercard Inc. (NYSE: MA) shares is excluded, profit fell 13%.
Leumi Card, owned by Bank Leumi (TASE: LUMI) (80%) and Azrieli Group Ltd. (TASE: AZRG) (20%), reported 1.7% profit growth to NIS 180 million in 2012. "Last year was good, which was surprising. The results are much better than we expected," said Leumi Card Hagi Heller.
Although 2012 was a good year for Leumi Card, the fourth quarter was weak, with NIS 38 million in profits, 15% less than for the corresponding quarter of 2011.
ICC, owned by Israel Discount Bank (TASE: DSCT) and First International Bank of Israel (TASE: FTIN), was the only credit card company to report lower profits in 2012. Its profits fell 8.7% over 2011, because of a 17% jump in sales and marketing expenses to NIS 200 million, while revenue was flat. Profits were also hit by a 6% increase in the provision for credit losses. The company's new CEO, Doron Sapir, took up his post a few weeks ago.
Aggregate credit card use was NIS 213.6 billion in 2012, up 7.8% over 2011, as Israelis' use of credit cards expanded. The figure is important, as it reflect private consumption.
Isracard CEO Dov Kotler predicts that credit card use will continue to expand in 2013. "We see increased use of credit cards, but the growth rate has slowed from 8-10% to 5-7%, and the slowing growth will probably continue in 2013. It is important to note, however, that there is still growth," he says.
Isracard continues to control half the market, and use of its credit cards crossed the NIS 100 billion threshold, after 7.6% growth in 2012 to NIS 104.3 billion.
ICC had the biggest increase in credit card use in 2012: 8.1% to NIS 53.5 billion. However, the company's revenue rose just 0.2% to NIS 1.12 billion, as increased credit card uses was offset by lower interchange fees.
Leumi Card's revenue rose by 1.5% to NIS 964 million in 2012, and Isracard's revenue rose 3.2% to NIS 1.78 billion.
The Isracard law, which increases competition in the credit card sector, affected Isracard's revenue, which, for the first time, reported a drop in clearing revenue from businesses: down 5% to NIS 897 million in 2012. The drop in interchange fees also hit the company's profits from this business, which fell 32% to NIS 41 million in 2012 from NIS 60 million in 2011.
"The power of competition in the wake of the Isracard law increased. There is no doubt that some variables weakened, such as clearing profits, but we intend to continue work on the basis of economic prices," says Kotler.
Leumi Card's non-bank credit card portfolio grew by 18.7% in 2012 to NIS 1.86 billion. Leumi Card is breathing down the neck of ICC, which until now dominated the non-bank credit card sector. "We plan to continue the rapid growth in consumer credit in 2013," says Heller. "We hope to become the largest player in the sector. Although we've cut prices, we're targeting comfortably off customers, so our provision for credit losses remains low."
Published by Globes [online], Israel business news - www.globes-online.com - on March 3, 2013
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