Bank Hapoalim (LSE: BKHD; TASE: POLI), Bank Leumi (TASE: LUMI), and Israel Discount Bank (TASE: DSCT), Israel’s three largest banks, hold more than 50% of directly managed assets in the provident funds sector. If United Mizrahi Bank (TASE: MZRH), First International Bank of Israel (TASE: FTIN1;FTIN5), and Bank Hapoalim subsidiary Bank Yahav for Government Employees Ltd. are added, the total held comes to 67% of directly managed assets in the sector. The figures are from the annual report by the Ministry of Finance capital markets, insurance, and savings division, just before publication of the Bachar committee’s recommendations.
The report stresses that if the provident funds whose investments are managed by the banks, although not held by the banks, are added, the amount managed by the three largest banks rises to 54% of total provident fund assets, and the amount managed by the six above-mentioned banks rises to 75% of total provident fund assets.
The report also shows that for the period from 1999 through early 2004, the concentration index in the provident fund sector was at 0.14 points, indicating a very high degree of concentration, even though there are 72 separate fund management entities.
The report stresses that were the provident fund sector fully decentralized, the concentration index would have been at 0.014 points. This shows that the situation is ten times worse than the optimal situation.
The report also found that the pension funds hold 2% of the provident funds’ assets, private entities hold 2%, and insurance companies hold 1%. Other entities hold and manage 8% of the provident funds’ assets.
The capital markets, insurance, and savings division emphasizes two main problems that stem from the high degree of concentration in the provident funds sector: an absence of competition, and a limited number of decision-making centers for capital market investments.
According to the report, a new phenomenon was observed for the first time in 2003 an increase in the mobility of funds in the provident funds, as part of an industry-wide trend. The source of this rise in mobility is growing competition between funds, and increasing awareness among fund members of the possibility of switching from one fund to another.
This rise is also attributable to movement of assets from the bank-affiliated provident funds to private funds, which have yielded higher returns for the past two years,
Published by Globes [online] - www.globes.co.il - on November 7, 2004