For 20 years, Bank Hapoalim (TASE: POLI) corporate banking division has assisted the largest customers in the Israeli market. In recent years, the division has set a strategy to expand its holding in the middle market - mid-sized and private clients - as well, and has achieved handsome growth in this market.
The Corporate Banking division’s work includes providing a full range of banking and financial services, not just credit, to its clients. In effect, in the past few years, the division has made a major effort to change the mix of services it offers clients and to increase the proportion of non-credit products, in order to reach the global benchmark and expand its other activities - from foreign trade and hedge deals to more basic services, such as management of current accounts and cash flows - while steadily increasing its share of the credit market, as explained by Bank Hapoalim Deputy CEO and Head of the Corporate Banking Jacob Orbach.
“Globes”: What does the Corporate Banking division offer its clients?
Orbach: “We offer clients a comprehensive package of services, which encompasses all their financial needs that are less standardized and more customized to its size. We have held quite a few interviews with our clients and discovered that they want us to initiate and be active, and not just to sit back and wait for a loan to be needed. We are trying to identify where the client is headed, what are the trends in its industry, what are its plans, what are its needs, and so forth. For example, quite a few foreign trade clients want us to interface with their computer systems in order to simplify and streamline operating processes with them."
“We constantly need to prove ourselves and be available. For example, clients have my phone number and they can always call, even though I have 1,000 employees handling them. This is a very competitive market, and it is impossible to sleep for even a moment.”
Can you compete against foreign banks?
“Before the 2008 crisis, we had almost no added value in assisting our clients overseas. The Western banking system, in both the US and Europe, offered clients, including Israeli entrepreneurs, very high financing rates. Loans were non-recourse, and it was sometimes possible to see a financing rate of 90% on a property, and at very low interest rates. We were much more conservative, offering 60-70% financing, most of which was not non-recourse, and our margins were higher. The 2008 crisis caused banks worldwide to massively change their appetite for risk, and the playing field changed. Today, even our foreign competitors more or less operate according to our methodology, with the same financing rates. As a result, there are markets where we definitely and successfully offer clients competitive bids.”
Do you have an advantage with Israeli clients?
“Of course. First of all, Israeli clients like to speak in Hebrew. It’s not just a matter of language, but of mentality. The client feels more comfortable with a local Israeli bank. You have to realize that when dealing with a leading business client in Israel, the bank already knows it and we probably have gained years of working together. When a client goes to a foreign bank, it has to build a relationship from the ground up. There, it is client no. 1,000, while we give a lot of attention. It’s easier for the client to talk with us about its overseas deals.”
Is the attention more important than the cold numbers, such as financing rates and interest rate spreads?
“It’s not just attention; it’s a thorough understanding of the client and its needs, and it’s our willingness to invest time and thought for it and to work a bit outside the box. The client receives different handling from what it obtains from a banker at a leading foreign bank. There, the vice president probably does not meet him, but someone of much lower rank. It’s not just Hebrew; it’s much more than that.
“We have an advantage in the opening stage of a deal, which is the riskiest. When a client buys a property overseas and needs financing for renovation and redevelopment, we have an advantage. The bank knows the client, knows that it knows how to renovate, knows its history with similar properties, and is prepared to enter a financing process on the basis of these figures, while naturally carrying out all the checks necessary for a specific deal.
“I’ll give you an example. There is an Israeli developer who invests heavily in the British hotel industry. A few years ago, he came to us with a very big deal, something like ₤500 million. He wanted to buy a hotel and renovate it. We knew his skills and assisted him in the project. He bought, he renovated, and he completed. The hotel is now operating very successfully.”
He trusts you?
“Very much. This is a good example of what we can offer our Israeli clients overseas and to continue assisting their operations there.”
What about local clients?
“We are there too, through the bank’s International Division. In the past four years, our New York branch dramatically opened middle market activity, which was unrelated to Israelis. This is a $500 billion market, half of which is held by the five big banks in the US, and the other half is held by banks of around our size. We located this niche, hired teams and an executive to run it, and the activity is developing nicely. It is growing at 25% a year.”
What about Europe?
“We haven’t yet gone there, and I assume we won’t go there anytime soon. We are unfamiliar with the European market. We are not sure if Switzerland is like France, or that France is like Italy, or that Italy is like Germany. The level of specialization needed to get there in this case is much higher. In Europe, we are focused on assisting Israeli clients. By the way, I mainly mean Western Europe. We have no direct activity in Eastern Europe.”
Why not?
“Because we do know them well enough, and they are perceived by us as too risky. I hear that Poland is very attractive and Romania less so, but we are looking in the direction. We do not know enough about the market and regulations.”
How do you operate in Western Europe?
“We have two operations in Western Europe: the first is the subsidiary Bank Hapoalim Switzerland, which provides private banking services and has branches in Zurich, Geneva, and Luxembourg; the second is a subsidiary, Bank Hapoalim Luxembourg SA, which is a licensed European bank that is a platform for the Corporation Banking to assist our Israeli clients with their business in Europe. When a client wants credit overseas, the bank can do it.”
Let us talk about regions outside the West: Africa, China, and India.
“In these regions, we mostly operate in collaboration with Ashra - The Israel Foreign Trade Risks Insurance Corporation Ltd. We usually do not assume risk on companies or governments in these countries. Ashra exists to stimulate Israeli exports, providing guarantees to banks that finance transactions. This is what you do with deals by exporters such as Israel Aerospace Industries Ltd. (IAI), Elbit Systems Ltd. (Nasdaq: ESLT; TASE: ESLT), Netafim Ltd. and their ilk, which mostly work with government agencies in China, Africa, and South America - countries whose banking systems usually do not assume direct exposure.”
Is China considered so risky?
“That depends on what in China. If it is Bank of China, obviously it is possible to take exposure against it, but if we’re talking about private enterprises of one kind or another - not necessarily. In any event, the result is that provide far less effective financing solution to our clients. The credit we give is guaranteed by Ashra, and the business is protected. It sounds simple, but to reach such a solution, we worked for years to formulate agreements and meet international standards. There are deals that Ashra will not insure for all kinds of reasons. It too has criteria: if it can guarantee $10 billion, for example, it won’t issue everything on Angola. In these cases, foreign insurance companies take its place. It’s different, it costs the client more, and it’s a different level of risk, but it is also a solution.
“As for China, Bank Hapoalim has extensive activity with Israeli exporters operating in China, partly through the Chinese Protocol in which the bank is a partner, through organized financing is provided in coordination with the relevant institutions in China. In this way, the bank has an efficient response to the financial needs required by the impressive growth in the volume of trade with this huge country.”
Isn’t it absurd that you say that you won’t operate in Eastern Europe, but that you will operate in Angola?
“The bank doesn’t take a risk on Angola, but on the State of Israel. When I lend to a client in Angola, in effect, I have a state guarantee, similar to an Ashra guarantee. In this way, Angola is less risky for me than Eastern Europe. If Ashra were to insure export transactions with Eastern Europe, obviously the handling would be similar.”
You can draw a map of Israeli transactions in the world? In which industries are we most active, and where?
“There is extensive activity by Israeli businesses in real estate all over the world, including in emerging markets. Another dominant activity is defense, especially the export of sophisticated arms everywhere in the world. We also export artillery and rifles, but the massive exports are far more sophisticated arms. Many Israeli companies are at the spearhead of technology and they have goods to sell to the world.
“Agriculture is also very developed in Israel. Netafim and Plasson Industries Ltd. (TASE: PLSN) are among the leading companies in this industry. There are also quite a few Israeli integrator companies: they go to a country, such as Kazakhstan, which wants to build a power station, and manage the project for it. They know how to bring the earthworks machinery from Kazakhstan, the iron manufacturers from the US, and the computing from Israel, and integrate the project. Israelis stand out in this field, apparently because of our ability to improvise and think outside the box. Another industry is high tech. Silicon Valley, and not only it, is full of Israeli companies. It seems to me that we are number 2 or 3 in the world, after the US, in founding start-ups. In general, we are a country whose proportion of exports to GDP is one of the highest in the world.”
Are there characteristic features of the Israeli entrepreneur? Is it possible to describe a clear figure from everything that you see?
“Yes. First of all, an Israeli is more entrepreneurial and less managerial. Companies which have succeeded are those in which the entrepreneur knew when to hand over the management reins to someone else. And yet, there are examples of Israeli entrepreneurs who have made it overseas even when they stayed on as managers or when they knew how to cooperate with other managers.”
What else characterizes us?
“We have an ability to improvise; there is apparently something in the Jewish mind. It does not seem to be a coincidence that there are so many Jewish Nobel Prize laureates. Israelis’ involvement in global trade and the international business world is way disproportionate to our size as a country, so there are apparently some positive points.”
What advice can you give the next Israeli businessperson dreaming of overseas? More precisely, what are the common mistakes that should be avoided?
“Those who fell are entrepreneurs who tried to do things they did not understand, or who tried to replicate success in one place overseas somewhere else, where the rules of the game were completely different. The most important tips I can give an Israeli businessperson who wants to head overseas is: study hard; learn from the experience of others; do not try to reinvent the wheel; and it is better not to go it alone. Take a local partner, and verify as best you can that he is the right partner who will not exploit you, because there have been such cases. Those who act cautiously and calculatingly can definitely succeed.”
Published by Globes [online], Israel business news - www.globes-online.com - on June 14, 2015
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