The Bank of Israel intends to reduce the capital adequacy requirements of the credit card companies by one percentage point and to offer substantial relaxations for new clearers (merchant acquirers) entering the market, according to a draft Bank of Israel document that has reached "Globes".
Earlier this week, "Globes" revealed that Bank of Israel planned to reduce its capital adequacy requirements of the credit card companies "substantially" and with immediate effect, in order to deal with the problem of credit limits after Isracard and Leumi Card are separated from Bank Hapoalim (TASE: POLI) and Bank Leumi (TASE: LUMI). The banks grant the credit card companies credit lines of over NIS 50 billion, and the fear is that these credit lines will be considerably reduced when the credit card companies are spun off from the banks, as the credit card companies do not have the required capital.
It now emerges that the Bank of Israel intends to lower the Tier 1 capital adequacy ratio from 9% to 8%, while the overall capital adequacy requirement will fall from 12.5% to 11.5%. This is not a dramatic drop, but it will reduce the capital needed by the credit card companies by 10-12%. The aggregate shareholders equity of the three credit card companies is currently NIS 5 billion (Isracard NIS 2.2 billion; Leumi Card NIS 1/5 billion; and Cal-Israel Credit Cards NIS 1.3 billion).
The upshot is that Isracard and Leumi Card will not be able to provide exiting credit limits and will have to reduce their customers' credit. It is estimated that the companies will also have to start charging their customers interest on their credit lines, whereas today such credit is free. The sources of capital for the credit card companies once they become independent will be debt offerings on the stock exchange and loans from financial institutions, on both of which they will have to pay interest, which they will roll over onto their customers.
Published by Globes [online], Israel business news - www.globes-online.com - on December 17, 2015
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