The entry of foreign banks into Israel will result in greater competition, the import of new banking technology and new and improved management techniques, said the Bank of Israel today. Nine representative offices, two branches and two subsidiaries of foreign banks are currently operating in Israel.
The Bank of Israel states that the foreign banks will improve access by Israel residents to international capital markets. The Bank of Israel also announced today that financial investments by Israeli residents overseas totals NIS 92 billion, of which NIS 67 billion are invested in Israeli and foreign shares listed on overseas stock exchanges.
The Bank of Israel Banking Supervision Department thinks that the entry of foreign banks is likely to result in increased efficiency in the domestic banking system, the introduction of new financial instruments and better techniques of risk management. Their entry is also likely to be a stabilizing factor in times of domestic recession, due to the wider spread of their assets and easier access to the international money markets and their credit-line facility from the parent bank.
“Although initially the activity of foreign banks in Israel, like that in other countries, tends to focus on rendering selective services to larger customers, as time elapses, their activity is expected to expand into offering services to small companies and households,” states the Banking Supervision Department.
The bank’s position paper also states that the foreign banks have shown growing interest in the possibility of opening representative offices or branches in Israel in recent years, due to the improved macro-economic situation, including the lower inflation rate, budgetary discipline, foreign currency liberalization, the integration of Israel’s economy into the global economy, the peace process and the government’s steps to reduce Israel’s country-risk rating on international markets.
The Bank of Israel notes that a foreign bank can operate in Israel in three ways: Via a representative office, a branch or a subsidiary.
- A representative office may only engage in providing information and referring customers to the foreign bank. No permit is required, but if it intends to use the word “bank” or a derivative of it in the name of the office, it must obtain the consent of the Governor of the Bank of Israel. Nine representatives of foreign banks are currently operating in Israel.
- A branch: The Bank of Israel permits large banks with high international rating to open branches. Two branches of foreign banks are currently operating in Israel: Standard Chartered Bank (formerly a branch of ANZ); and Citibank. Swiss HSBC received a permit for a branch, which will open next week.
At the first stage, the branches provide services for major companies and other wholesale banking services, and only later expand their operations to the retail banking field. Citibank has already announced its plans to soon begin offering banking services to households.
- A subsidiary of a foreign bank may operate either by establishing an Israel subsidiary or acquiring a local bank. Two foreign-owned banks are currently operating in Israel: Bank Polska Kasa Opieki Tel Aviv (Bank Pekao), owned by Italian UniCredito Italiano; and Investec Clali Bank, owned by South African Investec Bank.
Published by Israel's Business Arena on 17 January 2001