Citibank was the first, joined this week by Republic bank, and, according to Bank of Israel, various other foreign banks are standing in line for licenses to open branches in Israel. After neglecting, or even boycotting, the Israeli market for over 50 years, foreign banks are now discovering the Promised Land. Ask outgoing Governor of the Bank of Israel Yaakov Frenkel. He will predict that in a few years Israel will become an international banking center.
Citibank and Republic were the first to set up branches in Israel, but other European banks which opened representatives offices in Tel-Aviv in the past year do not conceal their intention of shortly upgrading their activity. Multi-Commercial Bank of Switzerland, Union Bancaire Privee of Switzerland and the Rothschild family's French bank are only some of them. They first set up an office and check out the market; then, when the time is ripe, they open a fully-fledged branch.
An essential precondition, on fulfillment of which foreign banks started to converge on Israel, was the decontrolling of foreign currency. This was an essential, but not a sufficient condition. Ask the heads of Citibank and they will not hesitate to say that the resumption of the peace process was the consideration that weighed with them more than any other.
Wondrous to relate, Israeli banks do not feel threatened. On the contrary. They welcome the competition, since competition, as they remind us, is always good for everybody, for both consumers and service providers.
In the privacy of their inner sanctums, the bank chiefs explain that there is nothing to fear, since foreign banks have nothing to gain in Israel. Competition is already cutthroat, especially in commercial banking, and they all operate in a margin of a few promil. So what will the foreign banks do, chip off another promil or two? Between ourselves, what do they understand about the Israeli customer's unique requirements? What do they understand about his fears of an inflationary outbreak or unexpected currency devaluation? Have they any notion of linked instruments in general? The device is unknown in the United States and Europe.
Financial institutions of the standing of Citibank and Republic, however, do not adopt a strategic decision to open a branch before doing their homework, nor do they set up branches anywhere in the world out of charitable considerations. If they decided to expand their activity in Israel, they must have concluded that there is money to be made here.
Neither Citibank nor Republic nor whoever follows in their footsteps intend handing out chequebooks to Israelis. They are making for a very specific niche, that of private banking and asset management, meaning that they are targeting the wealthy. They have all apparently identified the same trend, namely that the number of rich Israelis has steadily increased in recent years, inter alia thanks to the high tech craze, with not a few young people becoming millionaires almost overnight. Banks specializing in asset management don't waste time on customers with less than a million dollars to invest, and these banks believe that such a public does, in fact, exist in Israel.
It is true that most of Israel's large banks have developed private banking services in recent years, but there is no comparison. Luckily for Israeli banks, private banking and asset management services still constitute only a small part of their activity.
That may be why they appear so unconcerned, at least for now.
Published by Israel's Business Arena November 22, 1999